Presentation Transcript

1. MoneyCounts: A Financial Literacy Series

   Debt Management Dr. Daad Rizk 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214
2. Learning Objectives Identify debts and track spending Understand needs versus wants – make behavioral changes Build a sustainable budget, cut spending painlessly and reduce waste Create a strategy to survive tough economic times Discuss tools, tips and ways to make little changes that save money overtime
3. Confessions of a Shopaholic!
4. Confessions of a Shopaholic! Isla Fisher (2009 romantic comedy) http://www.youtube.com/watch?v=pLon5nJBjIE
5. How much debt is too much? According to the United States Census Bureau,(2010) 69 percent of Americans are in debt by an average of $70,000. Consumers with the greatest amount of growing debt were those in the age group of 35 to 45, with roughly $108,000 in debt. Those aged 45 to 55 were carrying $86,500 in debt And people aged 55 to 65 were saddled with $70,000 in debt. College students graduate with an average of $27,000 in student loans Penn State Adult students graduate with an average of $40,000 in student loans
6. Graduates of Penn State According to the Office of Student Aid At Penn State 66% of students who graduate each semester are carrying student loan debts The average student loan debt is $35,639 (2012-2013) Adult students graduate with $40,000 (2012-2013) Repayment of student loan debt ranges between 10-30 years depending on payment plan Average monthly payment on a standard 10 year plan is $700
7. Symptoms of Overspending You have no savings You are paying more than 10% of your net monthly income on your debt monthly payment You are paying the minimum bill payment on your credit card bill (s) You are having to pay late fees Your utilities are threatened to be disconnected Vendors are calling your cell phone number You are getting debt collection calls
8. Why Control Spending? Overspending can lead to excessive debt Overspending makes it difficult to set and reach financial goals Overspending prevents building financial wealth College fund Retirement Vacation Overspending can ruin your financial reputation Overspending can push you into bankruptcy
9. Recognize Careless Spending Careless Spending leads to Overspending Impact of purchasing on financial big picture Spending gets out of hand Conduct an assessment of all recent purchases Make a list of everything you bought in the last few months Assess every purchase Bring your spending habits to a higher awareness level Keep a spreadsheet for one complete year and become aware of variances Utilities depending on seasons Holidays and debt management Periodic expenditures – insurance, property tax, memberships, health, vision, dental, subscriptions, etc.,
10. Needs Versus Wants Divide your purchases between 2 categories Needs Wants Check validity by giving justification for each item on each list Use a critical eye as you evaluate each item on each list Mortgage – did you need this big of a house or mortgage? Food – did you need to eat out # of times a week? Cell phone – did you need this cell phone calling plan? Reduce waste whenever possible – go Green!
11. Necessary/Discretionary
12. Cash Flow and Budgeting
13. Sustainable Budget Track your spending against your current budget Conduct an ongoing review of your budget, choose any of the methods to help make your process easy: Use paper ledger An electronic spreadsheet Personal finance software Free services by your bank Free trusted site on the internet Maintain a level of saving throughout the year Pay yourself first (decide on a %$ of net income) Keep an emergency fund (lowest tolerable level)
14. Cut Spending Painlessly Target areas with indirect impact on your spending Car Insurance Premium – evaluate your risk tolerance Reduce spending gradually Instead of eating out 5 times a week, reduce to 2-3 times Instead of renting movies, check them out for free from the library Instead of ordering latte each morning, skip one or two mornings and make coffee at home Turn down the heat/cool a few degrees – make sure you stay comfortable and healthy Watch groceries spoilage and waste Use items before expiration date Buy what you and your family eat Clean and organize closets and garage – have a garage sale Open a saving account with proceed
15. Tough Economic Times Holt “ALL” spending you can “LIVE” without Go back to basics Stretch your savings – do not deplete fast Review your existing expenses against your income and adjust accordingly Recognize spending leaks and stop them Combine trips to the market and save on gas Find creative ways to increase income and/or control spending Garage sale Barter for things that you need Have pot luck gathering instead of going out to dinners with friends and family
16. Making Little Changes One Bottle of water, Vending machine = $1.50 Cost per week = 1.50 x 5 = $7.50 Cost per year = 7.5 x 50 = $375 Cost per 10 years = 3,75 x 10 = $3,750 Cost per 20 years = 3,750 x 20 = $7,500 Cost per 30 year = 3,750 x 30 = $11,250 Pre-tax $11,250 x 1.3 = $14,625 Gross Income
17. Steps to Conquer Debts Identify debts Make a list of all money owed stating principal, interest rate, minimum monthly payment broken between principal and interest Separate good debts from bad debts Mortgage (good if less than 30% of net income) Credit Card Debts (Bad if more than 10% of net income)
18. Worksheet to Conquer Debts
19. Compare Debt to Budget Add “Debts” required payments per month, excluding mortgage Credit Cards Car Loans Student Loans Personal Loans If total payment is more than 10% of net monthly income, find extra money in your budget to pay off
20. Eliminate High Interest Loans First Find additional payments in your budget to allot to the highest monthly interest amount If a credit card, call creditor and negotiate to lower the interest rate Freeze the use of the card – stop using it for charges Focus on paying the balance down quickly If you transfer balance to a lower interest rate, pay within the grace period to avoid financial problems.
21. Rule of 20/10 To keep debt in check, follow the rule of 20/10 Debt such as credit card, student loan, car loan, personal loan (excluding mortgage), should not be more than 20% of your total yearly net income Monthly payment should not exceed 10% of your monthly net income
22. How Much Mortgage? To Keep mortgage in check, follow this rule: Monthly payment, including insurance, tax, and interest should not be more than 30% of your net monthly income
23. Strategies Decide on your goals – tolerance level of debts Reduce Eliminate Pay down Become debt free
24. Step by Step! Make a commitment – set SMART goals Stop impulse buying – Back to basics Develop a plan – create a sustainable budget Research money saving options – cut out waste Take actions – baby steps – change behaviors – include family members Keep credit cards open – do not close paid accounts Pay on time and in full each month
25. Credit Cards Select one of each Visa MasterCard Other (American Express, Gas card, Department Store) Pay balance in full and on time Total charges should not exceed 30% of credit limit (Debt to credit limit ratio) Keep the cards with no annual fee, no added charges, lowest interest rate, and best rewards for your money!
26. Student Loans Loans should be last resort to finance education “HUNT” for scholarships and grants Save during the summer and throughout the year Ask for family support Borrow only what you “NEED” not your eligibility in student loans Imagine the financial future and borrow accordingly! “Factor” the destination in your present planning! If in repayment, keep a good relationship with your servicer
27. Options Depending on your level of debt, there are different options for different situations Settlement Negotiation Repayment plans Consolidation Bankruptcy (consider all options before you go this route)
28. Debt Settlement Debt Settlement Offering % to settle the debts, a step before full bankruptcy, take 3-5 years to complete and affects credits 7-10 years Acceptance of settlement is optional – it could be rejected by creditors Fees and interest keep accruing while settlement is in process Cost of services is an added burden to the debts and is usually required up front
29. Debt Negotiation Debt Negotiation Negotiating to adjust terms of debts The concept is to convince creditors to reduce the total amount of money owed in lieu of a set fee. The set fee is required to be paid up front Creditors are under no obligation to accept debt negotiation
30. Debt Repayment Plans Repayment plans Restructuring for easier monthly payments Usually higher interest rates Longer # years Higher overall cost Creditors are under no obligation to accept Fees for service required up front
31. Debt Consolidation Debt Consolidation Taking one new debt to cover all debts New interest rate, terms of payment Reduce or eliminate all late fees and penalties to debtor Overall higher cost but easier monthly payments Fees of service required up front
32. Last Resort Bankruptcy Chapter 7 - Liquidation – assets are sold to satisfy debts – gets rid of unsecured debts such as credit cards - low income Chapter 13 – Reorganization – Income is used to satisfy debts - Repayment plan – assets are kept – pays non dischargeable debts such as child support or alimony Student loans are not dismissible in a bankruptcy!
33. Fraudulent Debt Negotiators The Federal Trade Commission offers the following warning signs for identifying fraudulent debt negotiators: They will promise they can reduce your debt to the point that you’re paying pennies on the dollar for what you actually owe They will promise that some of your debt will be eliminated entirely They lie and tell clients that unsecured creditors do not sue debtors for non-payment They claim they can remove negative information from your credit report
34. Consumer Reviews Best Debt Management Programs National Debt Relief Curadebt CareOne Debt Relief Services American Debt Enders Ready for Zero Savvy Money Franklin Debt Relief Debt Consolidation Care Fast Track Debt Relief
35. Debt Management Worksheets

36. MoneyCounts: A Financial Literacy Series

    Thank You! Comments and Questions Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214