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DEBT MANAGEMENT. Melissa Wise First Citizens National Bank. DEBT MANAGEMENT TOPICS. Credit Credit Scores Using Credit Wisely Credit Cards Debt to Income Ratio Budgets Debt Management Programs.

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Debt management l.jpg

DEBT MANAGEMENT

Melissa Wise

First Citizens National Bank


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DEBT MANAGEMENT TOPICS

  • Credit

  • Credit Scores

  • Using Credit Wisely

  • Credit Cards

  • Debt to Income Ratio

  • Budgets

  • Debt Management Programs


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WHAT IS CREDIT? Americans who are financially overextended.”

  • Credit is when goods, services, or money is received in exchange for a promise to pay a definite sum of money at a future date.


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ADVANTAGES Americans who are financially overextended.”

Convenient

Useful for emergencies

Often required to hold a reservation

Ability to purchase expensive items sooner

Eliminates the need to carry large amounts of cash

DISADVANTAGES

Paying interest

Additional fees are common

Temptation to overspend

Can cause large amounts of debt

Identity theft

CREDIT


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CREDIT SCORES Americans who are financially overextended.”

  • What is a credit score or FICO® score?

    • A prediction of how likely you are to pay your bills

    • A number between 300 and 850 derived from many different factors

    • A number that drives the approval of credit extensions and the interest rate you pay on those extensions


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CREDIT SCORE KEY FACTORS Americans who are financially overextended.”

  • The FICO® scoring model looks at more than 20 factors in five categories.

    • How you pay your bills (35%)

    • Amount of money you owe and the amount of available credit (30%)

    • Length of credit history (15%)

    • Mix of credit (10%)

    • New credit applications (10%)


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RANGE OF CREDIT SCORES Americans who are financially overextended.”

  • The following are some basic guidelines for interpreting a credit score:

    • 620 and below – Poor credit

    • 621-690 – Fair credit

    • 691-720 – Good credit

    • 721-750 – Good to excellent credit

    • 751-800 – Excellent credit

    • 801 and above – Nearly perfect credit


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  • THINK OF YOUR CREDIT REPORT AS A SECOND RESUME! scores break out along these lines:

    A credit report contains information about where you work, live, how you pay your bills, whether or not you have filed bankruptcy and even if you have ever been arrested or sued.

You can check your credit score for free up to three times annually at http://wwwannualcreditreport.com!!


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USING CREDIT WISELY scores break out along these lines:

For decades, society has promoted the idea of “BUY NOW, PAY LATER.”

This is a good concept for some types of

purchases and a bad concept for many

other types of purchases.


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USING CREDIT WISELY scores break out along these lines:

  • Good Credit Purchases

    • Buying a house on credit is a smart move as home values rise quickly and you can gain equity through appreciation.

    • Financing an education is a good investment in the future. Your earning potential will eventually outweigh the cost of tuition, and educational loans are usually at a very low interest rate.

    • Buying a car can also be a good credit purchase. It is important to not get caught up in buying a car for more than you can afford.


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USING CREDIT WISELY scores break out along these lines:

  • Bad Credit Purchases

    • Credit card debt and other consumer debt is the worst type of debt. Interest rates and fees on borrowing money this way will be the highest of all, mostly because there is rarely a tangible item as collateral.

    • Financing a car for longer than the life of the vehicle can also be an unwise credit decision.


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CREDIT CARDS scores break out along these lines:

  • Credit cards are a great concept, but they end up bringing financial ruin to many people who do not use them properly.


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TIPS WHEN USING CREDIT CARDS scores break out along these lines:

  • Never use credit cards as extra money. Always allocate money from your current funds or monthly income in order to immediately payoff whatever you finance.

  • Read the fine print on the agreement to make sure you are getting the best terms available.


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A credit card is a responsibility. The choices revolving debt.

you make now will affect how much you pay

for a car, your home, and any other loans or

credit cards you apply for.


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DEBT TO INCOME RATIO revolving debt.

  • Debt to income ratios look at how much you owe in comparison to how much you earn.

  • It usually gives a good picture of your financial well being.

  • The lower your debt to income ratio, the more money you have to spend on things other than your monthly bills.


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DEBT TO INCOME CALCULATION revolving debt.

  • Take the amount of money that goes to paying monthly obligations (loans, credit cards, rent, etc.)

  • Divide that amount by your gross monthly income (this is the amount before taxes are taken out)

    Monthly debt payment / gross monthly income = D/I


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DEBT TO INCOME RATIO revolving debt.

  • Most experts recommend that no more than 28% of your gross monthly income be used to pay for your housing expenses (including mortgage or rent, taxes and insurance).

  • They also recommend that your total D/I be no more than 36% when paying all of your recurring debt.


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BUDGETS acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

  • A BUDGET HELPS YOU ORGANIZE YOUR SPENDING BY:

    • telling you what money comes in, what money goes out, and where it goes

    • helping you identify expenses that aren’t as important to you so you can free up money for those that are

    • showing you where some changes might be needed


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BUDGETING PITFALLS acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

There are three main reasons budgets fail.

1. Negative attitude – Try not to think of a budget as a financial diet. Try to think of it as a means to an end.

2. Lack of motivation – The best motivators are generated internally. It is important to honestly believe that budgeting can help you meet your goals.

3. Unrealistic expectations – The reality is that budgeting is an endurance event. Those who stick with it through thick and thin will come out ahead financially.


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TIPS FOR CREATING A BUDGET acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

  • Use a template

  • Add/delete categories as applicable

  • Plan on paying more on higher interest rate credit cards or loans

  • Prioritize your spending by determining wants versus needs

  • Have both a positive attitude and a positive ending balance

  • Put any annual payments into monthly payment figures


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  • Hypothetical budget assuming: acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

    • Salary of $35,000

    • Average credit card debt of $5,781 with a minimum payment of $231

    • Student loan debt of $18,000 with a payment of $147

    • Rent of $400

    • Car payment of $315


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DEBT MANAGEMENT PROGRAMS acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

  • If you do get yourself into a financial nightmare, there are ways to get back on track successfully and without ruining your credit forever.

  • Debt management programs, which are also known as credit counseling agencies, can save you a lot of money and years of paying on your credit cards if you choose a good one.


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DEBT MANAGEMENT PROGRAMS acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

A good debt management company is a

third party who will contact your creditors to:

  • Lower your interest rate

  • Negotiate a payment structure with the creditor that you can afford

  • Determine a realistic amount of time for your debt to be eliminated


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KEYS TO DEBT MANAGEMENT PROGRAMS acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

Key factors to keep in mind when selecting a

good debt management program:

  • Your current creditors lower your interest rate and not just your payment.

  • It is very important you continue to receive your statements to ensure no payments are past due.

  • It is not a loan. The company collects the payment from you and allocates it to your creditors.


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DEBT MANAGEMENT PROGRAMS acquiring new credit to ensure you are always an attractive credit risk to any financial institution.

  • For someone who gets into a bad financial position, these programs can be the key to getting back on track.

  • Most programs structure your payments to eliminate your debt in 4-5 years.

  • They make it so no new revolving accounts can be opened while participating in the program so once you have paid the debts off, you can have a fresh start.


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RESOURCES investments, and debt can be the key to your success.

http://ezinearticles.com

http://www.saukvalley.com

http://www.bankrate.com

http://en.wikipedia.org

http://www.moneyinstructor.com

http://www.citibank.com

http://www.mortgagenewsdaily.com

http://www.takechargeamerica.org


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