Debt Know How

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Debt Know How

• A Debt Education Program
• created by
• MasterCard in partnership with the
• University of Minnesota Extension Service

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Welcome to Debt Know How

• Resource to help consumers get out of debt
• Includes
• Website www.debtknowhow.com
• Debt education workshops

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Workshop Goal

• Participants will
• Increase knowledge about debt issues
• Assess personal debt
• Develop action plan to pay off debt and improve
  credit score

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Debt Overview
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Debt in America

• Consumer spending accounts for more than
  two-thirds of total economic activity (FDIC)
• Approximately 45 of Americans carry no
  outstanding balance on their credit cards (Staff
  Working Paper, Federal Reserve 2004)
• 1 in 20 American households are in high debt (MSN
  Money)

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Debt in America

• Consumer credit comes from mortgage debt, home
  equity loans and credit cards
• Consumer debt was 9.8 trillion in 2004
• Almost 80 from residential mortgages
• About 8 comprised of credit card debt
• Source The Nilson Report

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Common Reasons for Getting into Debt

• Loss of job
• Divorce
• Medical crisis
• Overspending
• Unexpected home or car expenses
• Bad money advice or fraud

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Debt Warning Signs Quiz
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How Did You Score?

• Total Points from Debt Warning Signs Quiz
• 0 - Congratulations
• 1 - 4 Pay attention to early warning signs
• 5 - 10 Already deep in debt

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Assess Your Finances
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How Much Money Do You Earn?

• Calculate Total Monthly Income
• Salary wages
• Tips
• Commissions
• Bonuses
• Interest/dividends
• Veterans benefits

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Where Does Your Money Go?

• Calculate Total Monthly Expenses
• Housing
• Savings setaside funds
• Food
• Health care insurances
• Transportation
• Personal
• Debt payments fees
• Recreation entertainment
• Past due bills debts

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Where Does Your Money Go?

• Subtract Total Expenses from Total Income
• to get Total Monthly Cash Flow
• Total Monthly Income _____
• Total Monthly Expenses - _____
• Monthly Cash Flow _____

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Assess Your Finances

• Tips
• Positive cash flow means its working
• Negative cash flow means spend less
• Use your budget to make changes
• Track spending
• Find money

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Measure Your Debt

• Calculate Total Monthly Non-Mortgage Debt
• Credit cards
• Home equity loan
• Store cards
• Vehicle loan
• Family loan
• Past due debt

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Measure Your Debt

• www.debtknowhow.com Budget calculator will help
  individuals tailor information to best suit their
  needs

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Measure Your Debt

• Calculate Debt Payments-to-Income Ratio
• 20 or higher take action to pay down debt

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Measure Your Debt
Debt Payments-to-Income Ratio Monthly Debt
Payments Monthly Take-Home Pay

• Example
• 1,105
• 5,275 21 Debt-to-Income Ratio

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Measure Your Debt

• www.debtknowhow.com Understanding your
  debt-to-income ratio is crucial to determining
  the correct path out of debt

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Improve Your Credit Score
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Credit History

• Positive credit history leads to opportunities
• Problems with credit leads people to action

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Credit History and Score

• Credit reporting bureaus maintain files on
  borrowers
• Experian, Equifax, and Trans Union
• major credit reporting bureaus
• Lenders use the information when making credit
  decisions
• Order your credit report each year

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Request Your Credit Report

• To order your credit report
• on-line
• www.annualcreditreport.com
• or call
• 1-877-322-8228
• or write
• Annual Credit Report Request Service
• P. O. Box 105281
• Atlanta, GA 30348-5281

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Access to Your Credit Report

• You are entitled to free credit reports at any
  time if
• Denied credit or employment
• Victim of fraud
• Receiving welfare benefits
• Unemployed and looking for work

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Whats in Your Report?

• Personal Identifying Information
• Your Name Social Security 123-45-6789
• 123 Current Address Date of Birth February 1,
  1960
• City, State 00000
• Previous Address(es)
• 456 Former Rd., Somewhere, ST 11111
• P.O. Box xxxx, Anywhere, ST 22222
• Last Reported Employment Account Manager, Any Co.

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Whats in Your Report?

• Public Record Information Collections
• Lien Filed 03/03 Good CTY Case or ID 4321
  Amount 26000 Class State Released 07/03
  Verified 07/03
• Bankruptcy Filed 12/02 Northern District Ct
  Case or ID 55HC44 Liabilities - 16000
  Personal Individual Discharged Assets- 800
• Collection Reported 05/96 Assigned 09/94 to
  Oldcoll (800)xxx-xxxx Client ABC Hospital
  Amount-1010 Unpaid Balance 1010 Date of
  Last Activity 09/94 Individual Account Account
  2345

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Whats in Your Report?

• Credit Account Information

Previous Payment History 3 times 30 days late
4 times 60 days late 2 times 90 days
late Previous Status 01/97 I2 02/97 I3
03/97 I4
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Whats in Your Report?

• Inquiries
• Home Mortgage 10/10/01 Real estate loan 214,000
• 10 Oak Lane for state bank with 30 yr. term.
• Any, MN 22222 scheduled until 10/2003
• 07/29/98 XYZ BankCard
• 04/12/97 GHG Department Store
• 02/24/00 Department Store
• 05/02/00 Mortgage

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Dispute Errors

• Make a copy of your credit report and mark items
  you suspect are incorrect.
• Write a letter to the reporting agency and
  explain the disputed items.
• Request an investigation and send copies of
  supporting documents.
• Tell the creditor in writing that you dispute an
  item.
• Keep copies of all correspondence.

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Credit Scoring

• Credit score is an evaluation of a persons
  credit worthiness
• Credit scores change overtime
• Scores range from about 350 to more than 800
• Lenders use scores plus other information
• Most well known score is FICO (Fair Isaac
  Corporation.)

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Base for Credit Scores

• Payment history - 35
• Amounts owed - 30
• Length of credit history - 15
• Taking on more debt - 10
• Types of credit used - 10

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Tips to Improve Your Score

• Pay bills on time
• Missed a payment? Get current and stay current
• Keep balances low on credit cards and other
  revolving credit
• Pay off debt rather than move it around

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Tips to Improve Your Score

• Dont close unused credit cards as a short term
  strategy
• Dont open unnecessary lines of credit
• Shop for rates within a focused time (ex. auto
  loan, home equity loan)
• Its okay to request and check your own score

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Action Plan
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Pay Off Your DebtTake Action Now

• Assess the problem
• Set a goal
• Generate new income
• Create your plan
• Track spending
• Save on interest and late fees

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Pay Off Your DebtTake Action Now

• Choose a method to pay off debt
• Contact creditors
• Consider a loan consolidation
• Seek help if overwhelmed
• Bankruptcy

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Pay Off Your DebtTake Action Now

• Assess the problem
• Determine why you are in debt
• Curb spending
• Determine amount of debt accumulated
• Set a goal
• Set smaller goals
• Keep motivated

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Debt Reduction GoalAction Plan

• Overall Goal
• Reduce my debt by __________ in __________months
• Monthly Goals
• Reduce my debt by _________ every month
• Increase my income by ________ each month
• Reduce my expenses by ________ each month
• Additional action steps I will take to reach my
  goal
• 1.
• 2.

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Pay Off Your DebtTake Action Now

• Generate new income
• Take a second job
• Sell assets
• Use money in low-interest bank accounts
• Create your plan
• Spending decisions
• Stick to a budget
• No new debt

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Pay Off Your DebtTake Action Now

• Track spending
• Find daily savings
• Save on interest and late fees
• Ask each credit card lender for a lower interest
  rate
• Prioritize your debts by interest rates

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Pay Off Your DebtTake Action Now

• Choose a method to pay off debt
• Highest interest rate first
• Smallest debt first
• Pay more than the minimum
• Contact creditors
• Explain the problem
• Try to work out a modified plan
• Make the agreed upon payments

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Pay Off Your DebtTake Action Now

• Consider a loan consolidation
• Multiple loans consolidated into one loan
• Lower interest rate
• Easier to focus on one loan than several
• Dont add new debt
• Seek help if overwhelmed
• See a reputable credit counselor
• Renegotiates loan terms
• Ask about fees

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Pay Off Your DebtTake Action Now

• Bankruptcy
• Bankruptcy Reform Act
• Based on income and ability to pay
• Chapter 7 or Chapter 13
• Means test is required
• Will vary according to state average income
• Must receive credit counseling before bankruptcy
• Must complete debt education before being
  discharged

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Resources

• Government Sites
• Federal Reserve Board www.federalreserve.gov
• Federal Trade Commission www.ftc.gov
• U.S. Department of Justice www.usdoj.gov
• Cooperative Extension www.csrees.usda.gov
• U.S. Bankruptcy Courts www.uscourts.gov
• Financial Literacy Education www.mymoney.gov

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Resources

• Debt Credit Management
• Freddie Mac www.freddiemac.com
• MasterCard Worldwide www.mastercard.com
• MasterCard www.debtknowhow.com
• Your Credit Card Companies www.yourcreditcardc
  ompanies.com

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Resources

• Accessing Your Credit Report
• Annual Credit Report www.annualcreditreport.com
  
• Equifax www.equifax.com
• Experian www.experian.com
• Trans Union www.transunion.com
• MyFico, a division of Fair Isaac Corporation
  www.myfico.com

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Evaluation

• Help us for future trainings!

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For information about MasterCards Debt Know How
program

• Patrick DwyerMasterCard Worldwide2000 Purchase
  StreetPurchase, NY 10577Tel (914)
  249-6637Fax [phone]patrick_dwyer_at_masterc
  ard.com

• Cindy M. PetersenUniversity of
  MinnesotaRegional Extension EducatorFamily
  Resource Management980 - 2nd Avenue
  SEHutchinson, MN  55350Tel [phone] or
  1-888-241-3207Fax [phone]peter210_at_umn.ed
  u

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Bibliography

• Materials have been adapted from the following
  sources
• Anthes, William L., Ph.D. Twelve Ways to Get Out
  of Serious Debt, National Endowment for Financial
  Education, February 3, 2003
• U.S. Department of Justice and Cooperative
  Extension Service conference call, July 21, 2005
• Bankruptcy Reform, BankruptcyAction.com
• MyFICO Whats in Your Credit Report, myfico.com
• Lifelong Money Management, Home Ownership Center,
  St. Paul, MN

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• MasterCard Worldwide in partnership with the
  University of Minnesota Extension Service
• Cindy M. Petersen, M.Ed., A.F.CUniversity of
  Minnesota Extension Service Regional Extension
  EducatorFamily Resource Management
• In consultation with
• Jean W. Bauer, Ph.D.Family EconomistUniversity
  of Minnesota Extension Service