This document provides information on financial literacy topics such as budgeting, credit, and paying down debt. It discusses calculating income and expenses to create a budget, tracking spending, reducing expenses, and minimizing debt through strategies like paying more than the minimum on high-interest loans. Credit reports and scores are explained, along with ways to improve credit like correcting errors and paying off collections. Examples are given showing how paying extra each month towards the highest interest debt can save thousands in interest over the life of the loans.

1. St. Paul, Minn. | www.wmitchell.edu
Practical Wisdom
Financial Literacy 101

2. Back to the Basics
• Budgeting
– Tracking Income and Expenses
– Reducing Expenses
• Credit as a Consumer
– Credit Reports
– Credit Scores
– Improving Credit
• Power Pay Debt

3. Budgeting 101
Benefits: maximize assets, minimize debt
Step 1: Calculating Income
Step 2: Calculating Expenses
- Tracking
Step 3: Develop a Spending Plan
Step 4: Minimize Expenses
- Distinguish: necessities and luxuries

4. Calculating Income, Basics
– Always underestimate income
– Include subsidies (insurance, housing, food)
– Income fluctuates by # hours or days worked
– Include financial aid, but deposit into draw account
• Deposit lump sum into account and withdraw monthly “pay”
– Miscellaneous income: VA payments, child support,
disability payments
Income Week 1 Week 2 Week 3 Week 4 Week 5 Total
FA Draw
Pay 1
Pay 2
Misc.

5. Tracking Expenses, Basics
- Determine where the money goes
- Goal: get your money to last longer
- Methods:
- Keep receipts
- Balancing a checkbook
- Notebook or ledger
- Calendar
- Software or websites
- Envelops with Money

6. Tracking Necessity Expenses
Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total
rent/mortgage
gas/electric
water/sewer
phone
car costs
gasoline
groceries
household
items
internet
debt
payments
insurance

7. Tracking Luxury Expenses
Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total
cable TV
meals out
clothing
cigarettes
entertainment
vacation
hobbies
pets

8. Ways to Reduce Spending
• Standard of living expectations
– Live large now with debt, live smaller later
and longer
– Eliminate or reducing eating out
– Studio apt v. 1-bedroom apt
– Living with roommates
– Smart phone v. cellphone
• Shop with Lists

9. Increasing Income for Students
• Full-time students: work 20 hours or less
– FT: 12 credits or more
– On-campus or off-campus
• Part-time students: work 40 hours or less
– PT: 11 credits or less
– Downside: May add time to graduation
– Benefits:
• Time for more work experience for resume
• Earning income to reduce need for financial aid debt
• Lower cost per credit at 11 credits

10. Credit Reports
Purpose: to determine whether you will pay your
debts in the future by looking at your past and
current debt and payment history
*** Created by Creditors for Creditors***

11. Credit Report v. Credit Score
Credit Reports: list of debt obligations with new
obligations fist
- Free from www.annualcreditreport.com
- Transunion (Midwest), Experian (west coast),
Equifax (east coast)
- Used to calculate credit score
Credit Score: numerical value of your credit risk
- the higher the number, the less risk you are
- Utilizes 45 data points from credit report

12. Making the Most of Your Credit Report
Information includes:
- Employment & Address History
- Number & Types of Inquiries
- Payment History on All Debt
- Amount, Age, and Types of Debts
- Public Records: evictions, bankruptcies,
court judgments
- Negative information lasts 7 or 10 years

13. Improving Credit
# 1 Correct Errors
- Send updates on addresses to credit
bureaus
- Contact credit for errors in payment history
# 2 Pay Off Debts or Collections
- Get payment plans or settlements in writing
- Payments on collections will refresh for an
additional 7 years

14. Paying Down Debt
• Standard: paying minimum payments
• Accelerated: paying more than the
minimum payments
– Tip: Once 1 debt is paid off, use that payment
towards the next debt
– Tip: Pay extra to only 1 debt
• Saves most money: highest interest debt
• Most rewarding visually: lowest balance

15. Power Pay with Student Loans
• Benefit of payoff of student loans: few bankruptcy
options and few limits on collectability
• Advantageous to pay down private student loans before
federal loans
• Generally less flexible repayment terms, variable interest rates,
and few discharges in the event of death or permanent disability
• Thinking about ICR or IBR?
– Have to balance interest rates with possible loan
forgiveness eligibility
– Federal student loans have flexible payment
amounts, impacted by income: most debt has fixed
payment

16. Payment Example:
Debt Type Debt Amount Debt Payment Interest Rate Repayment
Term
Stafford Loans $61,500 $426 6.8% 25 years
Plus Loan $90,000 $689 7.9% 25 years
Mortgage $237,000 $1309 5.25% 30 years
Credit Card #1 $5,000 $65 14.97% Variable
Credit Card #2 $2,000 $50 21.97% Variable
Car Payment $21,000 $384 3.9% 5 years
Total Debt: $416,500
Total Monthly Payment: $2923
Total Payments without Power Pay: $848,475 and takes 30 years
Total Paid with Power Pay, highest interest: $734,558 and takes 21 years
Total Paid with Power pay, lowest balance: $739,405 and takes 21 years,
- $109, 070 in savings or 13%
If an extra $100 is paid per month: $701,821 and takes 19 years
- $146,654 in savings or 17%

17. Questions?
Email: finaid@wmitchell.edu
Call: 651-290-6403
Want a free spreadsheet to track your debt?
Coming Attraction: October 23 and October 27
Financial PLP on Federal Loans and Public Service
Loan Forgiveness