1. Getting Out of Debt the Everyday Way
Heather Greenwood
Extension Agent
Fauquier County

2. Thoughts on Money & Debt
There are two ways of being happy: We may either diminish our wants or augment our means---either will do---the result is the same; and it is for each man to decide for himself, and do that which happens to be the easiest. If you are idle or sick or poor, however hard it may be to diminish your wants, it will be harder to augment your means. If you are active and prosperous or young or in good health, it may be easier for you to augment your means then to diminish your wants. But if you are wise, you will do both at the same time, young or old, rich or poor, sick or well; and if you are very wise you will do both in such a way as to augment the general happiness of society.
Benjamin Franklin

3. America’s Debt Obsession
Average household debt (consumer) is $8562 (NFCC 2003 study)
@ 18%, minimum monthly payment (2%)
48 years & 3 months to pay off and $24,082 in interest alone
Debt load - Overview
Increased from 12.6% DTIR in 1991 to 14.1% in the late 1990s
60 day delinquency jumped by 33% for ages 34-44, 66% for ages ( )

4. Debt Management Principles
Debt to income ratio (consumer debt)
<10%, safe zone
10-15%, caution zone
>15%, danger zone
Factors in debt elimination
Interest rate
Monthly payment amount
Principal owed

5. Foundation of a Sound Debt Repayment Plan
Goals
Communicate with all about goals
Specific, Measurable, Attainable, Realistic, Time Element
Priorities
Determine spending, saving, and goal priorities
Spending plan
Cash flow statement

6. What is the “Everyday Way?”
Wise financial decisions are based on everyday choices
What am I willing to give up to reach my most important goals?
Will I eat out for lunch each day?
How much do I spend on vending machine items in a month?
What are my frivolous expenses?
How will this expense bring me closer to my overall goals?

7. Debt Reduction Process
1. Stop increasing debt
Prioritize spending & use a budget to create a positive cash flow
Pay bills on time
Cut up credit cards
Freeze credit cards in block of ice
“Hide” credit card
Close credit card accounts (request “customer requested closure” statement on credit report)

8. Debt Reduction Process
2. Reduce principal balance & total
interest repaid
Request lower interest rate
Increase monthly payments
Maintain monthly payment amount
Apply “windfall” income to repayment
tax refunds, gifts, bonus, etc
1 month extreme budget diet
Eliminate money gobblers (every day way)

9. Everyday Way Tips General tips
Use it up, wear it out, make it do, or do without
Know your weaknesses
Remember that debt reduction is a long term process
Leave credit cards at home
Bring only the cash you will need in the store
Carry less cash

10. Everyday Way Tips Grocery tips
Shop stores that offer the most for your money
Stick to a detailed grocery list
Comparison shop - cost and quality
Shop alone
Avoid specialty foods
Use nonfat / evaporated milk for cooking
Check the “sell by” date
Shop for produce in season
Avoid badly dented cans
Know the store layout

11. Everyday Way Tips Transportation tips
Comparison shop - airfare, car rentals, car purchase, leasing, repairs
Consider the total price, not just up-front/ monthly price
Know what you want/need before talking to a sales associate
Follow recommended maintenance schedules
Drive less & keep car longer
Review & adjust insurance coverage

12. Everyday Way Tips Banking and Credit tips
Comparison shop for low/no fee accounts (checking, savings, investment, credit cards)
Understand risk involved in saving/investment vehicle - FDIC / NCUA insured?
Avoid late/over the limit fees
Shop around for accounts with low APR
Increase down payment or monthly payment
Pay credit card balances in full each month

13. Everyday Way Tips Mortgage tips Determine purpose of purchasing a home
Increase down payment & pay closing costs up-front
Carefully consider refinancing & home equity loans
Shop for the lowest rate w/ the fewest points
Add an extra $5-10 to payment each month or apply one-time lump sum payments
$175k 7%, additional $5 saves $4k, $10 saves $8k, $1000 early in repayment saves $6-7k

14. Everyday Way Tips Utilities tips
Request a home energy audit (electric/gas utility provider)
Comparison shop for electric service - do research before switching (Virginia Energy Choice)
Drop “extra” phone features
Understand long distance carrier - cost for calling at different times
Consider a pre-paid calling card (comparison shop)

15. Step Down Theory* How do you get from here? To here?
Eat out 4 times / week
Less expensive rest./fewer times
Grocery deli / frozen foods
How do you get from here?
Prepare from mixes
Eat at home / bake from scratch
To here?
*Used with permission, Alena Johnson, Utah State University

16. Procrastination +$109,236 $2,000 per Year at 9% $18,000 Jill $579,488
9 Years
+$109,236
Jill
$579,488
$70,000
35 Years
Jack
Went up the hill for water, Jack fell down, so did Jill but she didn’t get hurt. Jack broke his crown and spent some time in the hospital.
Click once – Jack’s info comes out. Jack started slower, set back by his time in the hospital. So he started at 31 and put $2,000 away in an IRA for 35 years for a total of $70,000.
Click again – Jill’s info comes out. So Jill got a job and began investing right away. She was 21. She put $2,000 in an IRA for the first 9 years she was working for a total of $18,000. Then she quit working after she got married to raise her family - and left the money in her IRA.
Now they are 65 and ready to start cashing in on their IRA’s. Who has more money? Click again – Jack’s total comes up (over $470,000). Click again – Jill’s total comes up (almost $580,000). Click again – or over $109,000 more than Jack – the cost of waiting.
Now, while Jill does have more money even though she put in less money, this also shows that it is never too late to save or invest. After all, Jack still has over $470,000!
Now the next thing to do is to...
$470,249 22 30 31 65
Age

17. Extension Resources PowerPay® Debt Management Program
What is a Power Payment?
Why does PowerPay work?
How can I receive a PowerPay Analysis?
Financial Mentor Program
Free, confidential, individual mentoring
Program focuses mostly on budgeting and debt management
Lunch N Learn Series (1st Wed of each Month)

18. Extension Resources, cont
Newsletters
Managing Your Money - 6 part series, hard copy or formats
VCE Website
Community, Civic, Church group presentations

19. financial joy riding is to arrest the chauffeur,
Final Thought
One way to stop
financial joy riding is to arrest the chauffeur,
not the automobile.
Woodrow Wilson

20. QUESTIONS /COMMENTS? Heather Greenwood Virginia Cooperative Extension
Fauquier County Office
24 Pelham Street
Warrenton, VA 20186
ext 13