Debt Management: Minding Your Dollars and Sense Dollars and Sense Managing Your Finances Presented by: Carlos Ayestas, Account Manager Citibank-The Student Loan Corporation February - 2008
Spending Plan Keep it Simple Make a List Prioritize Plan Ahead Prepare for Emergencies Track Spending
Parts of a Spending Plan Income money you get.» Basic components of a budget: Expenses what you spend your money on.» Subcomponents of a budget: Regular expenses, Savings, Entertainment, Emergencies.» Ask yourself: Who is the budget for? Are you single, married or have kids? What are your expense and savings goals? Are they short term or long term?
$AVING$ Savings are funds placed in a safe place that allow you to access your money at any time Savings provide funds for emergency situations Rule of Thumb: 3 months of your income should be in savings (monthly income X 3) Example: monthly income = $1,875, after taxes, X 3 = $5,625 in savings for emergencies Basic Types of Savings» Checking account» Savings account Certificates of Deposit» Investments
How to $ave Pay yourself first Save all unexpected income Have a nothing week, Don t open your wallet Collect your pocket change Break an expensive habit Bring your lunch to school - avoid restaurants Use coupons Shop at outlets
Make It A Priority To Save Every Month For example, if you save $35 a week (just $5 a day), you ll have: $1,825 after 1 year $9,215 after 5 years $18,250 after 10 years With interest, you ll have well over $20,000 in just 10 years!!!
Monitoring Your Debt In the U.S., we have the largest consumer debt of any country in the world. For every $100 earned, the typical American spends $140. Mostly with credit cards. Typically you should be concerned if you are spending more than 10 percent of your gross income on unsecured debt payments. Being in debt is stressful for a lot of reasons. The main one is loss of control over your financial life.
Developing Good Financial Habits Plan for Future Purchases and Expenses Spend Less Money than You Make Develop a Realistic Spending Plan Pay Your Bills on Time Save, Save, SAVE! Use Credit Wisely Don't Overspend
Debt to Income ratio What is Debt to Income Ratio Percentage of your income committed to paying Debt (fixed & revolving) Most lenders calculate your debt-to-income ratio to help determine whether you can afford a loan you apply for. What is your Debt to Income ratio? 36% or less: This is a healthy debt load to carry for most people. 37%-42%: Not bad, but start paring debt now before you get in real trouble. 43%-49%: Financial difficulties are probably imminent unless you take immediate action. 50% or more: Get professional help to aggressively reduce debt.
Debt to Income Example DEBT TO INCOME RATIO GROSS INCOME (Before Taxes and deductions) Fixed payments: House, Car, Credit Cards, etc. RATIO (Percentage of your income dedicated to paying Debt) Monthly $ 2,500.00 $ 900.00 36% Annually $ 30,000.00 $ 10,800.00 36%
How to Reduce Debt Always make more than the minimum payment. Avoid late fees, make your payment on time. Ask your creditors to reduce your interest rate. Add up the total amount of monthly debt payments you presently make. As you pay off each debt continue that same high payment. You will get out of debt much more quickly. Make goals for paying off debt and stick with them.
POWER OF PAYING MORE THAN MININUM PAYMENT Balance at Repayment 7,000 YRS Annual Percentage Rate (APR) 18 Number of Months to Repay 60 5.0 Monthly Payment 177.75 Total Payment 10,665.24 Total Interest 3,665.24 Enter your extra payment here => 50 New Monthly Payment 227.75 New Number of Months to Repay 41.5 3.5 Interest you saved with your extra PMT 1,210.29 17%
Consequences of Not Paying Your Debt Loss of control over your financial future. Added fees to debt balances, Balances grow with added interest. Wage garnishment. Loss of employment. Inability to obtain additional credit. Bankruptcy
What s In Your Credit Report Names and account information for all your past and current creditors Payment history Employers name, employment history and current income Homeownership status and previous addresses Public record information (such as foreclosures, bankruptcies and tax liens) Referrals of overdue accounts to collection agencies All inquires made within the last 6 months
Establishing Good Credit The most important part of a credit history is on-time payments. Pay all your bills on time Pay at least the minimum amount required (more if you can) Keep credit card balances low. Don t Max Out your credit cards Establish credit if you have none Don t open several new accounts just to get more credit While trying to establish credit, don t open too many accounts at once Close any extra unused credit cards
Need Help? Consumer Counseling Centers of America Helps individuals and families save and manage money through a Bill Consolidation and Debt Management Program which offers: Lowering existing monthly debt payments; Combining (consolidating) all debt payments into one monthly bank deposit amount; Reducing or eliminating the interest creditors charge; Bringing delinquent accounts current; Eliminating late fees and over-the-limit fees; Stopping harassing phone calls; and Improving personal credit ratings www.consumercounseling.org or 503-253-5115
Credit Bureau Reporting Agencies 800-685-1111 www.equifax.com 610-690-4909 www.transunion.com 888-397-3742 www.experian.com
Questions? Comments?