Presentation on theme: "The Good The Bad And The Ugly Debt Analysts Tim Sabelko Jason Gilbert Ryan Erickson Matt Bach Jeff Mathes."— Presentation transcript:
The Good The Bad And The Ugly
Debt Analysts Tim Sabelko Jason Gilbert Ryan Erickson Matt Bach Jeff Mathes
What is Debt? The idea of owing money to someone else.
Is Debt Good or Bad? How many have a debt? Consider good or bad?
Concepts Of Debt Good Debt Bad Debt Opportunity Costs
Good Debt vs. Bad Debt Good Debt Appreciates Bad Debt Depreciates
Good Debt Taking Out A Loan To Start A Business Taking Out A Loan For School Taking Out A Loan To Buy A House
Bad Debt Holding A Balance On A Credit Card Taking Out A Loan To Buy A New Car Taking Out A Loan To Go On A Trip
Opportunity Cost Time Spent In School Starting A Business Employee Training
Bad Debt: Credit Card Dynamics Model for Paying Credit Card Debt Analytic Solution Simulation Total Interest Paid
Analytic Solution General Formula where: P = payment R = Interest rate x(n) = balance at month n
Notice a pattern
Analytic Solution This equation forms a Geometric Series This series can be simplified
Analytic Solution Therefore our equation: can be written as
Simulation We ran simulations to show how long it would take to pay off your credit card bill
Multiple Credit Cards Optimizing Payments Within A Budget
Two Typical Credit Cards CardBalanceInterest Rate Funds VISA300018%X Discover500012%Y Total Funds 300 How do we pay off both cards?
Minimizing the Interest Question: What is the most effective way to pay of the two credit card balances? Answer : Pay the card with the highest interest rate.
Two Typical Credit Cards CardBalanceInterest Rate Funds VISA b 1 r 1 X Discover b 2 r 2 Y Total Funds F
Assumptions Your credit card company will not charge late fees. There will be no further charges made on your card.
Minimum Interest Equations
Finding Minimum Interest
Warning Do not attempt this in the real world. Your credit card company will charge you late fees in the real world. Consolidate your credit cards with a home equity loan or low interest credit card. Why? Alternative:
Good Debt We will use is taking a loan out for an Applied Math degree. Examples of Good Debt Education House Land Example:
After 108 months ( 5 years after you graduate)
Till retirement at age of 65
Your Math Degree Pays And 758,648 ahead of the associate degree grad. Well worth your 26,000 in loans. As you can see you come out 911,616 of the high school grad
Conclusions There is a right time to go into debt. Just think before you act. Do the Math. And make you good investments.
Summary Good Debt Bad Debt Opportunity Costs
References Bureau of the Census Bureau of Labor Statistics Dr. Deckelman Bill Kryshak CPA