Debt Elimination – A Practical ApproachDebt SucksDebt limits your opportunities. How would you like to pick up and move across thecountry, or maybe just closer to relatives, or to the beach, or to the mountains? Perhapsyou would like to make a career change, go back to school, or take that internationalassignment for a couple years. Forget about it. You are in debt.Debt forces you to put up with more crap. Debt forces us to put up with bad jobs,poor living conditions, broken down cars, and disappointment.Debt is the last thing you think about each night. Money problems is a leadingcause of insomnia. Instead of drifting off to sleep counting sheep you lie there thinkingabout your bills. You obsess over it. You worry over it.Debt plays by its own set of rules. Don’t believe me? Try carrying a large balance ona credit card. One month your statement reflects an APR of 6%, the next 29%. What did youdo to deserve it?
Debt Elimination – A Practical ApproachDebt SucksDebt eats away at future earnings. For every dollar you pay in interest on debt it is adollar that could have been spent on something else or invested, and a dollar taken awayfrom your earnings.Debt can make you desperate. Desperate times call for desperate measures. Beingneck deep in debt can make some people do things they normally wouldn’t think of doing.Debt affects your entire family. Kids may not fully understand the financialramifications of debt, but they recognize Mom and Dad sure fight about money a lot. Theydon’t know what debt is, but from listening to you they think they’ll always be in it, andbeing in it must be bad.Debt is a lousy employer. When you are in debt, and most of your income is goingtowards bills you might as well consider yourself working for the debt.
Debt Elimination – A Practical ApproachDebt SucksSo why do we do it?• We’re clueless. We know the consequences. We know what being in over our head does to us, but we continue to charge away• Instant Gratification• The internet• Emergencies• We thoroughly enjoy stress and disappointment in our lives
Debt Elimination – A Practical Approach Is There Any Hope? No. You’re Doomed. Just Kidding. Of course there is, but it is going to take some work on your part. Work? Oh My God! You mean I have to work at this? What Do I Need to Do?• Have a Plan – Have a Goal• Talk to your Significant Other – Buy In• Discipline• Sacrifice• Expect the Unexpected• Learn to Save Money• Stop Using Credit Cards
Debt Elimination – A Practical ApproachThe Hard FactsThere are a number of ways to get out of debt. Some work, some don’t. It all comes downto you, your attitude and your actions.• Debt Consolidation Loan - Helps if you have lots of high interest debt. Doesn’t getyou out of debt, it just crams a bunch of debt together with (hopefully) a better rate.Problem with this is, most people get a consolidation loan and go right back out and startcreating more debt! Now you have the original debt PLUS the new debt. Not a good planunless you are very disciplined and stop creating more debt.• Debt Reduction Companies – Most of these are a ripoff, trying to convince you theywill contact all your debtors and settle your debts for half off or more. Truth is they willcharge you a premium for this or just keep the money you send them and disappear. Evenif you do find a reputable one, your credit will be damaged because you are not paying fullpayments or your account has been settled.. Both have a negative impact on your creditrating.• Debt Counseling - Not a bad idea for some. There are legitimate companies out therelike Consumer Credit Counseling. But, again, since you are making reduced payments yourcredit rating will be damaged. And, like the plans above, you are not taking control of yourmoney. You are not learning anything. You are not changing your behavior.
Debt Elimination – A Practical ApproachTaking Control of Your MoneyThe only legitimate way of getting out of debt FOR GOOD is to change theway you think and change your spending habits.• Buy for need, not for want• Dump the credit cards• Start saving• Keep track of what you spend your money on• Create a budget and stick to it• Visualize and believe - picture yourself debt free• Stop being a victim of debt• Snowball your debtsSnowball my Debts?
Debt Elimination – A Practical ApproachDebt SnowballCoined by Dave Ramsey, “snowballing” your debts is a fairly easy concept to understand. Itis much harder to keep it rolling.Concept:Pay the minimum payment on all your bills except for one. Usually the smallest balance orthe highest interest account depending on your method.Result:As you make payments, the payments on the paid debts are added to the next debt in lineand, like a snowball, gather more payment money as the debts are paid off.
Debt Elimination – A Practical ApproachSnowball – Saves Time and Money5 Credit Cards1 Automobile LoanTotal Debt: $11,719Extra Money Available Each Month: $100Creditor APR Balance PaymentRadio Shack 21.00 $215.00 $15.00Sears 21.00 $365.00 $23.00MasterCard 19.80 $1,705.00 $49.00Visa 15.90 $2,341.00 $73.00Discover 12.90 $1,250.00 $27.00Auto Loan 10.90 $5,843.00 $315.00Totals $11,719 $502.00It will take 12 years and 5 months to pay off these debtsInterest Charges: $4,917Money Paid: $16,636Snowball MethodIt will take 1 years and 11 months to pay off these debtsInterest Charges: $1,599Total Money Paid: $13,318Money Saved: $3,318Time Saved: 10 Yrs 6 Mos.
Debt Elimination – A Practical ApproachStep OneGather all of your bills together. Don’t include reoccurring monthly bills like your utilities, gasoline,food or insurance in the debt snowball. Use credit card bills, loans and mortgages only for now.Step TwoList the amount you owe for each debt. You can arrange your list any way you’d like. Most list debts .in order from the least amount owed to the most. This will allow you to see results quickly sinceall your smaller bills will be getting paid off first. You may also opt to arrange your list with the debtcarrying the highest interest rate first down to the debt with the lowest interest rate. Although this isprobably the best way to save the most interest in the long run, it doesnt provide you with thepsychological advantage of seeing your bills eliminated quickly up front.Step ThreeAdd in the rest of your monthly fixed and variable bills--including utilities, insurance, gas, food etc.--along with the MINIMUM PAYMENTS of your credit cards, loans and mortgage. Don’t forget to putsome money in savings!! Look at the remaining income you have left. We’ll call this money your“pool” Put that “pool” money towards the Snowball Plan.
Debt Elimination – A Practical ApproachPool Money SavingsAll loans, credit cards,mortgage MINIMUM Monthly Net IncomeMONTHLY PAYMENTSAll other fixed monthly Monthly Monthly expenses (cell phone, Expenses Expensesinsurance, utilities etc.) Total Total All variable monthly expenses (gasoline, food, entertainment, etc.) Pool Money
Debt Elimination – A Practical ApproachStep FourFocus your attention on the first debt on your list. Pay your regular MINIMUM payment plus yourPOOL money. Pay the minimum on all other debts.Step Five.When your first debt is paid off, take the amount you were sending to your first creditor includingthe POOL money plus the minimum payment on your second debt. Keep doing this for each debton your list until, at last, you are debt free
Debt Elimination – A Practical ApproachExample of Snowball ProcessMonthly Pool Money - $100Creditor APR Balance PaymentRadio Shack 21.00 $215.00 $15.00Sears 21.00 $365.00 $23.00MasterCard 19.80 $1,705.00 $49.00Visa . 15.90 $2,341.00 $73.00Discover 12.90 $1,250.00 $27.00Auto Loan 10.90 $5,843.00 $315.00•Pay $15 to Radio Shack PLUS the $100 Pool Money ($115 total). Pay the minimum on all other bills•When Radio Shack is paid off, the $15 Radio Shack payment, PLUS the $100 Pool money PLUS the $23Sears minimum payment ($138 total) goes towards the Sears bill. Pay the minimum on all other bills•When Sears is paid off, the $15 Radio Shack payment, PLUS the $100 Pool money PLUS the $23 Searspayment PLUS the $49 MasterCard minimum payment ($187 total) goes towards the MasterCard bill. Pay theminimum on all other bills•When MasterCard is paid off, the $15 Radio Shack payment, PLUS the $100 Pool money PLUS the $23 Searspayment PLUS the $49 Master Card payment, PLUS the $73 Visa minimum payment ($260 total) goestowards the Visa bill. . Pay the minimum on all other bills•Rinse and repeat until debt free.
Debt Elimination – A Practical ApproachSnowball ProgramsThere are a bunch of “debt reduction” programs on the internet. Some of these programs cancost up to $3500!! That is absolutely ridiculous. What is the point of spending a ton of moneyon a program when you are already in debt!!Two programs I have used and can recommend.Powerpay (online only) cost = FREEZilchWorks (downloadable to your computer) cost = $39Powerpay: https://powerpay.orgZilchWorks: http://www.zilchworks.com/zilchstandard.html
Debt Elimination – A Practical ApproachExample Creditor APR Balance Payment Radio Shack 21.00 $215.00 $15.00 Sears 21.00 $365.00 $23.00 MasterCard 19.80 $1,705.00 $49.00 Visa 15.90 $2,341.00 $73.00 Discover 12.90 $1,250.00 $27.00 Auto Loan 10.90 $5,843.00 $315.00
Debt Elimination – A Practical ApproachEmergency FundIt is very important to have at least $500, preferably $1,000 or more, in your savings account as anemergency fund. That way you aren’t tempted to use your credit cards for a car repair or some otheremergency bill. .Don’t start to pay your snowball debts until you have this done.You can use the program to pay your savings account as the first bill.If, for any reason, you have to take money out of your emergency fund, you will need to replace it asa first priority. Use the same method as you did above. Using your extra money fund, to repay yoursavings. Once the savings is back to the desired level, get back to your regular snowball debt program.
Debt Elimination – A Practical ApproachExample Budget - $300 Pool Money Available Minimum2012 Payment Due Date 2/10 2/24 3/9 3/23 4/13 4/27 $300 + $50 PMT $350 + $50 PMT $400 + $40 PMTLOANSmtg $1,050.00 10th $1,050.00 $1,050.00 $1,050.002nd mtg $300.00 29th $300.00 $300.00 $300.00line of credit $75.00 20th $75.00 $75.00 $75.00auto loan $200.00 6th $200.00 $200.00 $200.00school loan $120.00 25th $120.00 $120.00 $120.00CREDIT CARDSa $225.00 13th $225.00 $225.00 $225.00b $200.00 9th $200.00 $200.00 $200.00c . $210.00 11th $210.00 $210.00 $210.00d $120.00 21st $120.00 $120.00 $120.00e $80.00 3rd $80.00 $80.00 $80.00f $110.00 21st $110.00 $110.00 $110.00g $50.00 25th $50.00 $400.00 $85.00 PIFh $50.00 25th $350.00 PIFi $40.00 8th $40.00 $40.00 $355.00 $2,830.00 TOTAL $1,875.00 $1,255.00 $1,355.00 $1,775.00 $1,795.00 $1,335.00 OTHER DEBT 2/10 2/24 3/9 3/23 4/13 4/27 Savings $200.00 $200.00 $200.00 Gas $50.00 $50.00 $125.00 Phone $50.00 $50.00 $50.00 Electric $200.00 $100.00 $100.00 Cable $100.00 $100.00 $100.00 Water $140.00 Sewer $110.00 Car Insurance $150.00 $150.00 $150.00 Cell Phone $85.00 $85.00 $85.00 Total Other Debt $200.00 $745.00 $640.00 $235.00 $150.00 $660.00 Total All Debt $2,075.00 $2,000.00 $1,995.00 $2,010.00 $1,945.00 $1,995.00 Total Income $2,500.00 $2,500.00 $2,500.00 $2,500.00 $2,500.00 $2,500.00 Net After Debt $425.00 $500.00 $505.00 $490.00 $555.00 $505.00
Debt Elimination – A Practical ApproachFinancial Freedom“If you will live like no one else now, later you can live like no one else” – Dave RamseyIf you make sacrifices now that most people aren’t willing to make, later you will be able to live thelife those people wish they could live.1. Make a budget and live by it3. Pay cash for everything or use a debit card5. Use the Debt Snowball Method to pay off all your debts7. Live frugally (need vs. want)9. Prepare for emergencies11. Pay yourself first - invest regularly
Debt Elimination – A Practical ApproachCopies of Presentationhttp://www.slideshare.net/rickz713/eliminate-your-debt-forever-11616743Contact Merzimmerman@taleriscu.orgThank You!