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Navigating Personal Financial Turbulence: Debt Relief Options for Lance in College

Explore Lance's financial journey in college as he grapples with credit card debt and limited income. Learn about debt settlement, bankruptcy options, and managing debt-to-income ratios to make informed decisions.

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Navigating Personal Financial Turbulence: Debt Relief Options for Lance in College

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  1. IT’S NOT WHAT YOU THINK:CHAPTER 7 OR 13? A Personal Financial Literacy Lesson

  2. Scenario 1 Lance attends college on a student loan. To help him with other living expenses, he has three credit cards. Over two years, he is now $9,000 in debt on his credit cards. Even though he works part-time, he has not been able to pay the minimum amount on all of his credit cards. What should he do?

  3. What Should Lance Do?

  4. When debts become impossible to repay, there only a few choices… • Debt settlement companies (for-profit) • Consumer credit counseling agencies (non-profit) • Chapter 7 bankruptcy court procedure • Chapter 13 bankruptcy court procedure

  5. Video 1 Cornell Two-Column Notes

  6. Video 2 Cornell Two-Column Notes

  7. Venn Diagram 5 features of this type of debt relief 4 elements in common 5 features of this type of debt relief

  8. Venn Diagram Example 4 elements in common 5 features of this type of debt relief You don’t have to repay any of the debt 5 features of this type of debt relief Both are bankruptcy types Has a repayment plan

  9. Debt-to-Income Ratio (DTI) Debt-to-income ratio is a personal finance measure that compares a person’s income to the amount of debt that person has. It is recommended that people do not have more than 36% of their income tied up in debt or repeating expenses. (Source: Investopedia) Example: John’s monthly income is $1420. His monthly expenses are: Apartment $425.00 Bills $100.00 (cell phone, utilities) $525.00 in total expenses 525.00/ 1420.00 = 36% DTI

  10. Scenario 2 Lance attends college on student loans and scholarships. His parents are paying on his student loan until he graduates. To help him with other living expenses, he has three credit cards. He has paid off one credit card and owes a total of $2,000 on the other two. Lance receives $700 in scholarship money monthly. He also earns another $800 from a part-time job. He rides his bike around college and does not own a car. His monthly expenses are around $200 for a cell phone, food, and utilities. His apartment costs only $200 because he shares with a roommate. How much can Lance pay toward his credit cards without going beyond his DTI ratio?

  11. Scenario 2: Answer To determine Lance’s debt-to-income ratio (DTI) without his credit card debt, you must add together his bills ($200) and apartment cost ($200) as his debt. His income is scholarship money ($700) and his job ($800) or a total of $1500. To calculate the DTI as a percentage, it is 400/1500, or 26%. The maximum target debt-to-income ratio is 36%, so Lance can use 10% more of his total income to pay off his credit cards, or another $150, before reaching the 36% DTI.

  12. Chant It, Sing It, Rap It Create a chant, song, or rap that demonstrates your understanding of the topics in this lesson. Topics include: • Credit Counseling Agencies (non-profit) • Debt Settlement Companies (for-profit) • Chapter 7 Bankruptcy • Chapter 13 Bankruptcy • Debt-to-Income Ratio

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