FROM RED TO BLACK

Managing your debt and credit

Marilyn Williams, CD, BBA, MBA, CFPUNBSJ, 1983, 1993

How do we end up in debt?1. We want everything now2. We are used to using “plastic”

so it is not “real”3. Credit is far too easy to get and

in your face all the time.

Credit does not give us more money to spend !

You cannot spend it now and have it to spend later!

Do you NEED it or do you WANT it?

There are advantages to credit:1. Great for emergencies2. Safe and convenient

3. You can buy things when you don’t have cash on hand (i.e. a sale)

4. Rebates and bonuses

There are disadvantages to credit:1. Things are more expensive

2. Easy to overspend3. Ties up your future income

4. May lead to financial and family difficulties.

What can you do to avoid the credit trap?

1. You only need ONE credit card.2. Keep the credit limit low and demand that

they do not raise it.

What can you do to avoid the credit trap?

3. Save the money ahead of time – it’s a great sense of accomplishment.

4. Cash lets you do some bargaining.

What to do with your existing debt?

1. ALWAYS make payments on time – at least make the minimum payment.

2. Pay off the highest interest rate debt first.

Your Credit Rating

1. A score based on how well you handle your bills.

2. It affects your ability to borrow money.3. Employers also check credit ratings!!!

5 C’s of credit

1. Character – your attitude toward debt2. Capacity – do you have the cash flow?

3. Capital – what is your net worth4. Collateral – do you have assets to pledge?

5. Conditions – the economy, your job security

So how do you avoid problems?

1. Buy want you NEED not what you want.2. Save the money and pay cash

3. Pay basic bills on time4. Only borrow what you absolutely need –

avoid the pitfalls of “gimmicks” and “rewards”

So how do you avoid problems?

5. Shop around for prices and credit cost – it is fun!

6. Choose the shortest term you can afford – you will pay less in the end.

7. Pay more than the minimum – that is the “never – never plan”.

What if you are in trouble?

1. Talk to your creditors and try to work out a plan.2. Consolidate your debt.

3. Credit Counselling.4. Trustees in bankruptcy – actually a better deal for

you.5. Full blown bankruptcy

QUESTIONS?