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Conquering Personal Debt

Conquering Personal Debt. J. Peters & Associates, Inc. Jerry Peters 651-645-7558 Employee Assistance Programs. Financial Facts. 6.4 percent of payments on bank-issued credit cards were late last year, a 20-year high

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Conquering Personal Debt

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  1. Conquering Personal Debt J. Peters & Associates, Inc. Jerry Peters 651-645-7558 Employee Assistance Programs

  2. Financial Facts • 6.4 percent of payments on bank-issued credit cards were late last year, a 20-year high • 7 percent of homeowners were 30 days or more behind on loan payments—a jump of 60 percent from March 2008 • Nearly 60 percent of Americans 40-79 years old have experienced a life crisis such as job loss, death of a spouse, or a major disability. Source: AARP

  3. Financial Facts (cont’d.) • Women are more likely than men to be significantly affected, both financially and emotionally, by these life events • Many people report making poor decisions or taking no action at all when experiencing these events • 1.4 million people will file for bankruptcy this year • $41-$56 billion will be written off by credit card companies this year

  4. 10 Signs of Too Much Debt 1. You don’t have any savings 2. You only make the minimum payment on your credit cards each month 3. You continue to make purchases on your credit card while trying to pay it off 4. You have at least one credit card that is near, at, or over the credit limit 5. You don’t know how much total debt you actually have.

  5. 10 Signs of Too Much Debt (cont’d.) 6. You are occasionally late in making payments on bills, credit cards, or other expenses 7. You use cash advances from your credit cards to pay other bills 8. You bounce checks or overdraw your bank accounts 9. You’ve been denied credit 10. You lie to family and friends about your spending and debt

  6. Impact of Debt The reality: Debt problems can take a regular life and make it a complete mess very quickly

  7. Ways Out of Debt • The best way to deal with a debt problem is to be organized • Do a budget at least four times a year—and more often if necessary • Have a plan for paying your bills on time each month • Late fees average around $29-$35 • Pay more than the minimum amount each month if possible • Pay the most on the credit card with the smallest balance

  8. Ways Out of Debt (cont’d.) • Always pay your mortgage before everything else • Foreclosure help is available—with new government programs, the key is to act early • For financial assistance, call Jerry Peters at 651-645-7588 at your company-sponsored Employee Assistance Program

  9. What’s in a Credit Score? • Payment history • This is the biggest factor in your credit score, and accounts for about 35 percent of the score. If you’ve had late payments or other problems, getting them behind you and letting time pass will help. • Total debts • Your total amount of debt counts for about 30 percent of the score. If you have debts other than your mortgage—such as a car or personal loan—a higher debt load could hold your score down.

  10. What’s in a Credit Score? (cont’d.) • Types of credit • The variety of credit you have counts for about 10 percent of your score. This includes credit cards, mortgages, installment loans, student loans, and other types of credit. • New credit • The amount of new credit you are applying for and/or receiving makes up about 10 percent of your score

  11. What’s in a Credit Score? (cont’d.) • Poor—350 • Fair—590 • OK—610 • Good—680 • Great—750

  12. Other Issues that Affect Your Credit Score • Bankruptcy • Judgments • Tax liens • Foreclosures • Settlements • Charge-offs • Seriously late payments (90+ days) • Currently late payments

  13. Credit Score Bottom Line The better your credit looks, the lower the interest you will have to pay.

  14. Top 5 Credit Questions • I can’t pay my home loan and my credit card debts are out of control. What can I do? • Take action NOW: Talk with an expert about a debt management, investigate bankruptcy or foreclosure • I just lost my job. How can I survive financially until I find a new one? • Have a cash reserve • Reduce your expenses • Talk to your creditors • Consider COBRA insurance

  15. Top 5 Credit Crisis Questions (cont’d.) 3. My credit card limit was lowered. What does this mean for my credit score? • Banks lower credit limits to reduce their risk exposure • Your credit score could drop dramatically—it appears you’re maxed out • Call the credit card company to see if you can have your limit increased • Reduce your balance • Open a new credit card account to counter the reduction

  16. Top 5 Credit Crisis Questions (cont’d.) 4. I already have bad credit. Will a foreclosure, repossession, debt settlement, or bankruptcy make it worse? • Once your credit score is under 500, you don’t need to worry much about it getting worse • Once on stable ground, work on rebuilding your credit

  17. Top 5 Credit Crisis Questions (cont’d.) 5. The credit crisis hasn’t hurt me yet. What can I do to be prepared? • Get out of debt • Build up 3-6 months worth of emergency savings • Have a good credit score

  18. Credit Score Fact Negative records stay on your credit report for 7-10 years

  19. Rebuilding Your Credit • Survey the damage • Order credit reports from all three credit reporting companies and review all three of your scores (see www.annualcreditreport.comand www.beingfrugal.com ) • Check the expiration dates • You will see major improvements in your score when these records expire (bankruptcy, late payments, etc.) • Dispute the errors • If you find inaccurate records, fraudulent accounts, or records that should have expired, you have the right to dispute the errors (see www.credit.com)

  20. Rebuilding Your Credit (cont’d.) 4. Start adding positive information • The best way to improve your score is to add new positive information • Open a new credit card or a secured card and use it responsibly each month (see www.bankrate.com) • Keep balances low and always pay on time 5. Monitor your progress

  21. 5 Ways to Save Money During a Recession • Insurance • Are you getting the best deal on your home and auto insurance? The better your credit score, the better the insurance deal • Phone plans • Call your cell provider to see if there is anything you can do to cut your monthly bill. • Compare cell plans from other providers • Consider only one phone or a pay-as-you-go plan • Save energy at home • Check out the U.S. Dept. of Energy’s Home Energy Saver Tool

  22. 5 Ways to Save Money During a Recession (cont’d.) 4. Cable TV can cost $40-$100 per month • Negotiate a better deal or downgrade your service • Switch to a free antenna with the major network channels 5. Credit cards • Increase monthly payments • Reduce your balance or interest rates • $5,000 debt @ 16 percent interest—you save $4,500 by increasing your payment percentage to 6.57 percent and reducing your interest rate to 12 percent

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