1. A Practical Approach Debt Elimination

2. Debt Elimination – A Practical Approach Debt Sucks Debt limits your opportunities. How would you like to pick up and move across the country, or maybe just closer to relatives, or to the beach, or to the mountains? Perhaps you would like to make a career change, go back to school, or take that international assignment for a couple years. Forget about it. You are in debt. Debt forces you to put up with more crap. Debt forces us to put up with bad jobs, poor living conditions, broken down cars, and disappointment. Debt is the last thing you think about each night. Money problems is a leading cause of insomnia. Instead of drifting off to sleep counting sheep you lie there thinking about your bills. You obsess over it. You worry over it. Debt plays by its own set of rules. Don’t believe me? Try carrying a large balance on a credit card. One month your statement reflects an APR of 6%, the next 29%. What did you do to deserve it?

3. Debt Elimination – A Practical Approach Debt Sucks Debt eats away at future earnings. For every dollar you pay in interest on debt it is a dollar that could have been spent on something else or invested, and a dollar taken away from your earnings. Debt can make you desperate. Desperate times call for desperate measures. Being neck deep in debt can make some people do things they normally wouldn’t think of doing. Debt affects your entire family. Kids may not fully understand the financial ramifications of debt, but they recognize Mom and Dad sure fight about money a lot. They don’t know what debt is, but from listening to you they think they’ll always be in it, and being in it must be bad. Debt is a lousy employer. When you are in debt, and most of your income is going towards bills you might as well consider yourself working for the debt.

4. Debt Elimination – A Practical Approach Debt Sucks So why do we do it? We’re clueless. We know the consequences. We know what being in over our head does to us, but we continue to charge away Instant gratification The internet Emergencies We thoroughly enjoy stress and disappointment in our lives

5. Debt Elimination – A Practical Approach Is There Any Hope? Is There Any Hope? No. You’re Doomed. Just Kidding. Of course there is, but it is going to take some work on your part. Work? Work? Oh My God! You mean I have to work at this? What Do I Need to Do? Have a Plan – Have a Goal Talk to your Significant Other – Buy In Discipline Sacrifice Expect the Unexpected Learn to Save Money Stop Using Credit Cards

6. Debt Elimination – A Practical Approach The Hard Facts The Hard Facts There are a number of ways to get out of debt. Some work, some don’t. It all comes down to you, your attitude and your actions. Debt Consolidation Loan - Helps if you have lots of high interest debt. Doesn’t get you out of debt, it just crams a bunch of debt together with (hopefully) a better rate. Problem with this is, most people get a consolidation loan and go right back out and start creating more debt! Now you have the original debt PLUS the new debt. Not a good plan unless you are very disciplined and stop creating more debt. Debt Reduction Companies – Most of these are a ripoff, trying to convince you they will contact all your debtors and settle your debts for half off or more. Truth is they will charge you a premium for this or just keep the money you send them and disappear. Even if you do find a reputable one, your credit will be damaged because you are not paying full payments or your account has been settled.. Both have a negative impact on your credit rating. Debt Counseling - Not a bad idea for some. There are legitimate companies out there like Consumer Credit Counseling. But, again, since you are making reduced payments your credit rating will be damaged. And, like the plans above, you are not taking control of your money. You are not learning anything. You are not changing your behavior.

7. Debt Elimination – A Practical Approach Taking Control of Your Money Taking Control of Your Money The only legitimate way of getting out of debt FOR GOOD is to change the way you think and change your spending habits. Buy for need, not for want Dump the credit cards Start saving Keep track of what you spend your money on Create a budget and stick to it Visualize and believe - picture yourself debt free Stop being a victim of debt Snowball your debts Snowball my Debts?

8. Debt Elimination – A Practical Approach Debt Snowball Debt Snowball Coined by Dave Ramsey, “snowballing” your debts is a fairly easy concept to understand. It is much harder to keep it rolling. Concept: Pay the minimum payment on all your bills except for one. Usually the smallest balance or the highest interest account depending on your method. Result: As you make payments, the payments on the paid debts are added to the next debt in line and, like a snowball, gather more payment money as the debts are paid off.

9. Debt Elimination – A Practical Approach Snowball – Saves Time and Money 5 Credit Cards 1 Automobile Loan Total Debt: $11,719 Extra Money Available Each Month: $100 Creditor APR Balance Payment Radio Shack 21.00 $215.00 $15.00 Sears 21.00 $365.00 $23.00 MasterCard 19.80 $1,705.00 $49.00 Visa 15.90 $2,341.00 $73.00 Discover 12.90 $1,250.00 $27.00 Auto Loan 10.90 $5,843.00 $315.00 Totals $11,719 $502.00 It will take 12 years and 5 months to pay off these debts Interest Charges: $4,917 Money Paid: $16,636 Snowball Method It will take 1 years and 11 months to pay off these debts Interest Charges: $1,599 Total Money Paid: $13,318 Money Saved: $3,318 Time Saved: 10 Yrs 6 Mos.

10. Debt Elimination – A Practical Approach Step One Step One. Gather all of your bills together. Don’t include reoccurring monthly bills like your utilities, gasoline, food or insurance in the debt snowball. Use credit card bills, loans and mortgages only for now. Step Two Step Two List the amount you owe for each debt. You can arrange your list any way you’d like. Most list debts in order from the least amount owed to the most. This will allow you to see results quickly since all your smaller bills will be getting paid off first. You may also opt to arrange your list with the debt carrying the highest interest rate first down to the debt with the lowest interest rate. Although this is probably the best way to save the most interest in the long run, it doesn't provide you with the psychological advantage of seeing your bills eliminated quickly up front. Step Three Step Three Add in the rest of your monthly fixed and variable bills--including utilities, insurance, gas, food etc.-- along with the MINIMUM PAYMENTS of your credit cards, loans and mortgage. Don’t forget to put some money in savings!! Look at the remaining income you have left. We’ll call this money your “pool” Put that “pool” money towards the Snowball Plan.

11. Debt Elimination – A Practical Approach Pool Money Pool Money All loans, credit cards, mortgage MINIMUM MONTHLY PAYMENTS All other fixed monthly expenses (cell phone, insurance, utilities etc.) All variable monthly expenses (gasoline, food, entertainment, etc.) Monthly Expenses Total Monthly Net Income Monthly Expenses Total Pool Money Savings

12. Debt Elimination – A Practical Approach Step Four Step Four. Focus your attention on the first debt on your list. Pay your regular MINIMUM payment plus your POOL money. Pay the minimum on all other debts. Step Five Step Five When your first debt is paid off, take the amount you were sending to your first creditor including the POOL money plus the minimum payment on your second debt. Keep doing this for each debt on your list until, at last, you are debt free

13. Debt Elimination – A Practical Approach. Example of Snowball Process Monthly Pool Money - $100 Creditor APR Balance Payment Radio Shack 21.00 $215.00 $15.00 Sears 21.00 $365.00 $23.00 MasterCard 19.80 $1,705.00 $49.00 Visa 15.90 $2,341.00 $73.00 Discover 12.90 $1,250.00 $27.00 Auto Loan 10.90 $5,843.00 $315.00 1.Pay $15 to Radio Shack PLUS the $100 Pool Money ($115 total). Pay the minimum on all other bills 2.When Radio Shack is paid off, the $15 Radio Shack payment, PLUS the $100 Pool money PLUS the $23 Sears minimum payment ($138 total) goes towards the Sears bill. Pay the minimum on all other bills 3.When Sears is paid off, the $15 Radio Shack payment, PLUS the $100 Pool money PLUS the $23 Sears payment PLUS the $49 MasterCard minimum payment ($187 total) goes towards the MasterCard bill. Pay the minimum on all other bills 4.When MasterCard is paid off, the $15 Radio Shack payment, PLUS the $100 Pool money PLUS the $23 Sears payment PLUS the $49 Master Card payment, PLUS the $73 Visa minimum payment ($260 total) goes towards the Visa bill.. Pay the minimum on all other bills 5.Rinse and repeat until debt free.

14. Debt Elimination – A Practical Approach Snowball Programs Snowball Programs There are a bunch of “debt reduction” programs on the internet. Some of these programs can cost up to $3500!! That is absolutely ridiculous. What is the point of spending a ton of money on a program when you are already in debt!! Two programs I have used and can recommend. Powerpay (online only) cost = FREE ZilchWorks (downloadable to your computer) cost = $39 Powerpay: https://powerpay.org ZilchWorks: http://www.zilchworks.com/zilchstandard.html

15. Debt Elimination – A Practical ApproachExample Creditor APR Balance Payment Radio Shack 21.00 $215.00 $15.00 Sears 21.00 $365.00 $23.00 MasterCard 19.80 $1,705.00 $49.00 Visa 15.90 $2,341.00 $73.00 Discover 12.90 $1,250.00 $27.00 Auto Loan 10.90 $5,843.00 $315.00

16. Debt Elimination – A Practical Approach Emergency Fund Emergency Fund. It is very important to have at least $500, preferably $1,000 or more, in your savings account as an emergency fund. That way you aren’t tempted to use your credit cards for a car repair or some other emergency bill. Don’t start to pay your snowball debts until you have this done. You can use the program to pay your savings account as the first bill. If, for any reason, you have to take money out of your emergency fund, you will need to replace it as a first priority. Use the same method as you did above. Using your extra money fund, to repay your savings. Once the savings is back to the desired level, get back to your regular snowball debt program.

17. Debt Elimination – A Practical Approach Financial Freedom Financial Freedom “If you will live like no one else now, later you can live like no one else” – Dave Ramsey If you make sacrifices now that most people aren’t willing to make, later you will be able to live the life those people wish they could live. 1.Make a budget and live by it 2.Pay cash for everything or use a debit card 3.Use the Debt Snowball Method to pay off all your debts 4.Live frugally (need vs. want) 5.Prepare for emergencies 6.Pay yourself first - invest regularly

18. Debt Elimination – A Practical Approach Copies of Presentation Copies of Presentation www.taleriscu.org/lunch Contact Me rzimmerman@taleriscu.org Thank You!