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Reduce Debt Fast
- 1. DEBT REDUCTION FINANCIAL EDUCATION SERIES Regarding Web sites and other sources, the information conveyed is for information purposes only. No endorsement is implied. Neither Associated Banc-Corp nor any of its affiliates give tax or legal advice. Consult with your tax and/or legal advisor for information specific to your situation.
- 2. AGENDA • Top things you should know • Where do you stand? • Total Money Makeover • Eliminating credit card debt • Tips to get your spending under control • Your questions 1
- 3. TOP THINGS YOU SHOULD KNOW 1. Americans are loaded with credit card debt 2. Some debt is good 3. Some debt is bad 4. Get a handle on your spending 5. Pay off your highest-rate debts first 6. Don't fall into the minimum trap. 7. Watch where you borrow 8. Expect the unexpected 9. Don't be so quick to pay down your mortgage 10. Get help as soon as you need it 2 -money.cnn.com
- 4. WHERE DO YOU STAND? Revolving Debts (credit cards, store charge cards, car loans) Card/Loan Amount owed Int. Rate Est. annual interest payment Ex. Visa $4,379.27 17.65% $4,379.27 x 0.1765 = $772.94 ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ Total ________ _______________________ Mortgages, home equity loans/ lines, student loans Card/Loan Amount owed Int. Rate Est. annual interest payment ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ ________ ________ ______ _______________________ Total ________ _______________________ 3 -experian.com Do you have too much revolving debt? Total revolving credit/auto loan debt: ______________ Total after-tax annual income: ______________ Debt-to-income ratio: ______________
- 5. TOTAL MONEY MAKEOVER 1. Save $1,000 2. The “debt snowball” 3. Finish the emergency fund 4. Maximize retirement investing 5. College funding 6. Pay off the home mortgage 7. Build wealth 4 -Dave Ramsey’s Total Money Makeover
- 6. HOW THE DEBT SNOWBALL WORKS Order your debts smallest to largest, except the mortgage. Make minimum payments on all debt, except the smallest. Apply all available money toward the smallest debt to quickly eliminate it. Once paid, apply that payment amount to the next smallest debt…and continue the process until all debt is paid. EXAMPLE: • Credit card 1: $500 at 13% with monthly payment of $25 • Credit card 2: $1,000 at 19% with monthly payment of $50 • Car loan: $6,000 at 4% over four years with monthly payment of $135 • Student loan: $15,000 at 5% over 10 years with monthly payment of $159 If you pay the minimum on everything and add $100 extra to the smallest credit card payment, you should pay it off in 5 months. Then you can attack the second card at $175 a month ($100, plus the newly-freed up $25, and the $50 payment already planned). Card 2 should also be paid up in 5 months. Then you’ll have $310 a month ($175 plus $135) to put toward the car! At that rate, the auto loan will be paid in 15 months. By the time you get to your student loan, you’ll be paying $469 on it each month, and in a couple of years be out of debt! 5 -daveramsey.com
- 7. ELIMINATING CREDIT CARD DEBT 1. Plan the pay-off order. 2. Reduce your interest rates with a phone call. 3. Create a budget. 6
- 8. TIPS TO GET SPENDING UNDER CONTROL • Don’t spend what you don’t have. • Build up a cash cushion. • Use cash more often. • Put everything in writing. • Cut spending and apply savings to debt. 7 -Lynette Khalfani, Zero Debt BONUS TIP: To make sure you haven’t forgotten any creditors, order your credit reports.
Editor's Notes
- Welcome participants. Ensure everyone receives the following: a copy of the corresponding handout, your business card and any applicable brochures for related products and/or services as well as any current promotions you’d like to discuss. Please also bring along business cards of any partners you may discuss or mention. Introduce yourself, the Financial Education Series and its purpose. If time permits, ask participants to introduce themselves and share a question or concern they may have about debt reduction. Explain that this is one of many topics within the Financial Education Series. Other topics include: Budgeting, Identity Theft, Understanding Your Credit Score, Saving for College, and IRAs. Encourage future participation in topics of interest. Introduce Debt Reduction topic and handout.
- Review agenda items.
- The average American household with credit card debt carry balances totaling $16,748.1 The average student loan debt is $49,905.1 Male householders carry significantly more credit card debt then their female counterparts. While the average credit card debt has been rising over the last decade, the average percentage of people holding credit card debit has been gradually decreasing, indicating more people have increased their level of debt. Current data indicates that the average American holds 52% more debt today, than they did a decade ago.2 Borrowing for a home or college usually makes good sense. Just make sure you don't borrow more than you can afford to pay back. Don't use a credit card to pay for things you consume quickly, such as meals and vacations, if you can't afford to pay off your monthly bill in full in a month or two. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly. The key to getting out of debt efficiently is first to pay down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on. If you just pay the minimum due on credit card bills, you'll barely cover the interest you owe, to say nothing of the principal. It will take you years to pay off your balance, and potentially you'll end up spending thousands of dollars more than the original amount you charged. It may be convenient to borrow against your home or your 401(k) to pay off debt, but it can be dangerous. You could lose your home or fall short of your investing goals at retirement. Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you don't have an emergency fund, a broken furnace or damaged car can seriously upset your finances. Don't pour all your cash into paying off a mortgage if you have other debt. Mortgages tend to have lower interest rates than other debt, and you may deduct the interest you pay on the first $1 million of a mortgage loan. If you have more debt than you can manage, get help before your debt breaks your back. There are reputable debt counseling agencies that may be able to consolidate your debt and assist you in better managing your finances. There are free services. Some counseling is very expensive. Sources: 1 NerdWallet.com 2 ValuePenguin.com
- Review ”Where do you stand?” (e.g., There’s a difference between ‘good’ and ‘bad’ or “revolving” debt. You should understand the effect of compound interest on both debt and savings. If you get on the wrong side of that compound divide, high credit-card interest rates can make if harder and harder for you to dig out. In order to get where you want to go, you need to know where you are starting from. Take some time to list all of the different debts you currently have, and divide them into “good” and “revolving” categories. It’s also important for you to know what kind of interest you’ll pay this year, which will involve a little math. ) Next discuss the “Do you have too much revolving debt” box. (e.g., Once you’ve completed this exercise, look at your total revolving debt – not your interest payments, but the debts themselves – and compare them this number to your annual after-tax income. The ideal number here is zero, but at the very least you want to keep revolving debt – including auto loans – to 15% or less of your after-tax income. Otherwise, your debt payments will eat up too big a chunk of your paycheck…) Carrying a balance on your credit card from month to month does not improve your credit score. Ideally you should pay off your credit card in full every month. The price of carrying a balance not only impacts your costs ( interest charges) it also impacts your utilization rate (balance-to-limit ratio). The lower your utilization rate, the lower your credit scores.1 Mention that most lenders have stringent guidelines for unsecured credit… for example, not to exceed 20% of gross income disclosed. If you are over that, it is probably a red flag that you may have too much debt. Source:1 Experian.com Move on to “Total Money Makeover” slide on next page…
- Explain that Dave Ramsay’s “Total Money Makeover” is a helpful plan to get you on the right track toward debt reduction and building wealth. Save $1,000 The Debt Snowball – List all debts except mortgage. Begin applying every available dollar to payoff the smallest balance first. Then take the amount spent on the first card each month and apply it to the next smallest debt. By applying the Debt Snowball method you get quick wins that will help you stay motivated to continue paying off your debt. Finish the Emergency Fund – A fully funded emergency fund covers three to six months of expenses. Maximize Retirement Investing – Invest 15% of your before tax income in retirement College Funding Pay off the Home Mortgage (after all other debt has been paid.) Build Wealth
- Source: Dave Ramsey.com
- Plan the payoff order. Take a look at the list of revolving debts you compiled on the previous page. Write down your credit card debts again, but this time in order from highest interest rate to lowest. Generally, that’s the order in which you should be aiming to pay them off. Reduce your interest rates with a phone call. It is sometimes possible to reduce the interest rates you pay by negotiating with the credit card provider. While it may not work every time, you should definitely give it a try. Create a budget. Figure the size of your monthly cushion. There are two basic types of expenses – those you have to pay and those you don’t have to pay. An important piece of information, when it comes to planning your way out of debt, is the rough size of your monthly “cushion” – the money left over after you’ve taken care of your non-discretionary expenses (must-pay items). If it’s less than zero, you’re gong to have to make some pretty drastic changes to avoid eventual bankruptcy. If your cushion is positive, you’ll need to allocate as much as possible toward debt repayment.
- Don’t spend what you don’t have. Build up a cash cushion. Ideally, you should have three months’ expenses set aside for emergencies. Use cash more often. People tend to spend less when they are using cash (vs. credit cards). Mention debit cards as an option where cash isn’t appropriate. Put everything in writing. Create a written list or a spreadsheet itemizing each creditor you owe. For some people, this step will be a big eye-opener. You may find out that you have more debt than you thought. Bonus tip: To make sure you haven’t forgotten any creditors, order your credit reports. Cut spending and apply savings to debt. Look for ways to slash your spending. For example, if you own a car, you can refinance your auto loan and save big bucks. Ask participants to share their personal tips.
- Discuss products/services available (e.g., Associated bankers are more than willing to review your loans, interest rates and investments to ensure you start off in the very best position possible…) To learn more, contact an Associated professional or visit www.associatedbank.com. Prior to the meeting ensure you fully understand the related products and/or services. Field any questions/comments/concerns related to debt reduction. Encourage participants to follow the tips provided and provide dates/information for future presentations of the Financial Education Series. Ask if there are any additional topics that they would like to learn more about (inform Learning & Development of new topic suggestions.) Thank participants for participating. Remain available for one-on-one questions until all participants have left.