Debt OverloadDebt Overload

Good Debt vs. Bad DebtGood Debt vs. Bad Debt

► ““Good debtGood debt”” would would be considered any be considered any debt that will help debt that will help you improve youryou improve your education and/or education and/or your ability to earn a your ability to earn a higher incomehigher income. .

► Student loansStudent loans► Mortgage loansMortgage loans► Automobile loansAutomobile loans

► ““Bad debtBad debt”” is what is what keeps many keeps many otherwise smart and otherwise smart and successful successful individuals from individuals from reaching personal reaching personal savings and savings and homeownership homeownership goalsgoals

► Revolving DebtRevolving Debt

How Did I get here?How Did I get here?

► Job lossJob loss►Medical issues or illnessMedical issues or illness►OverspendingOverspending

Getting Out of DebtGetting Out of Debt

► Recognize you are in a difficult financial situation: Recognize you are in a difficult financial situation: IN IN DEBTDEBT

► Write down all of your debts and monthly paymentsWrite down all of your debts and monthly payments► Make a Make a BUDGETBUDGET and stick with it and stick with it

Mathematical (High Interest First) vs. Psychological Mathematical (High Interest First) vs. Psychological (Dave Ramsey’s Snowball method)(Dave Ramsey’s Snowball method)

► Contact your CreditorsContact your Creditors► Contact a reputable Credit Counseling ServiceContact a reputable Credit Counseling Service► Consider Bankruptcy only as a last resortConsider Bankruptcy only as a last resort

Contact your CreditorsContact your Creditors

► If you are having trouble making payments If you are having trouble making payments contact your lenders immediatelycontact your lenders immediately

► Ask for the Ask for the ““hardshiphardship”” department if your department if your situation is temporarysituation is temporary

► Credit issuers are usually willing to work Credit issuers are usually willing to work with you if you have a good relationship and with you if you have a good relationship and solid pay history with themsolid pay history with them

► Try to renegotiate terms of credit Try to renegotiate terms of credit agreement on your own.agreement on your own.

Credit CounselingCredit Counseling

►National Foundation for Consumer Credit National Foundation for Consumer Credit www.nfcc.org or (800)388-2227 or (800)388-2227

► For profit and not for profit counseling For profit and not for profit counseling organizationsorganizations

► Financial education should be included in Financial education should be included in the program to help you avoid future money the program to help you avoid future money management mistakesmanagement mistakes

►Make sure payments are made immediately Make sure payments are made immediately to creditors for minimal impact to credit to creditors for minimal impact to credit scorescore

Bankruptcy Bankruptcy

► Chapter 13Chapter 13 bankruptcy protection is a form of debt bankruptcy protection is a form of debt reorganization. Chapter 13 requires you to pay reorganization. Chapter 13 requires you to pay some of your debts back through a court appointed some of your debts back through a court appointed trustee over 3-5 years. Creditors accept whatever trustee over 3-5 years. Creditors accept whatever the court has approved as payment in full. the court has approved as payment in full.

► Chapter 7Chapter 7 bankruptcy is a total liquidation of assets bankruptcy is a total liquidation of assets which should be avoided if at all possible. Under which should be avoided if at all possible. Under Chapter 7 you are released from the obligation to Chapter 7 you are released from the obligation to repay your debts, but will risk losing some or all of repay your debts, but will risk losing some or all of your property in the process.your property in the process.

► Bankruptcy Bankruptcy does notdoes not eliminate student debt!! eliminate student debt!!

What works to repair CreditWhat works to repair Credit

► There is There is nothingnothing any credit repair agency can legally do any credit repair agency can legally do for you which you canfor you which you can’’t do for yourself for t do for yourself for freefree..

► A reputable A reputable Credit CounselorCredit Counselor will not just negotiate will not just negotiate payment plans and take your money, rather they will offer payment plans and take your money, rather they will offer and in some cases require that you complete a budget and in some cases require that you complete a budget and money management courses as part of their programand money management courses as part of their program

► Negotiating a reduced payment will probably have a Negotiating a reduced payment will probably have a negative impactnegative impact on your credit score. It is still sometimes on your credit score. It is still sometimes better to take the hit and get the debt behind you.better to take the hit and get the debt behind you.

► Debt Management Plans Debt Management Plans are payment contracts set up are payment contracts set up with your creditors with newly negotiated terms. You pay with your creditors with newly negotiated terms. You pay the credit counseling company and they in turn pay your the credit counseling company and they in turn pay your creditorscreditors

What doesnWhat doesn’’t work to repair t work to repair CreditCredit

► Credit Credit ““piggy backingpiggy backing”” : Credit piggybacking is a : Credit piggybacking is a legal method of improving a personal credit rating legal method of improving a personal credit rating by adding an individual as an by adding an individual as an "authorized user""authorized user" onto an account of a person who already has good onto an account of a person who already has good credit. This quickly and dramatically raises the credit. This quickly and dramatically raises the authorized user's credit score. authorized user's credit score.

► Going to payday lenders, finance companies and Going to payday lenders, finance companies and pawn shops for help alleviating debtpawn shops for help alleviating debt

► IgnoringIgnoring your debt situation your debt situation

How to Stay out of TroubleHow to Stay out of Trouble

►Make a Make a BUDGETBUDGET and and stick with itstick with it

► 70-20-10 Rule70-20-10 Rule► Use Credit SparinglyUse Credit Sparingly►Have Have 3-6 months3-6 months

emergency savings emergency savings to cover living to cover living expenses expenses