Download the free PowerPoint and teaching materials at:
http://www.lisbonwc.org/free.htm
Welcome!
FINANCIAL FREEDOM WORKSHOP
Session 2
Developed using the books Your Money Map: A Proven 7 Step Guide to True Financial Freedom and The Total Money Makeover
- You may have noticed that even though we use scripture as a foundation for this workshop, that this is not a Bible Study.
- You may be asking, “Why are we doing this is church?”
- This is a how to workshop.
- We don’t just want to tell you that God wants us to live free of debt.
- We want to show you how to do it.
- This is a Bible application workshop.
ASSIGNMENT FROM LAST WEEK
Bring your spending plan with your income listed and as much of your expenses as you can dig up.
THE ROAD TO FINACIAL FREEDOM
MONEY MAP
Destination #1
- Begin using a spending plan
- Save $1,000 for emergencies
Destination #2
- Pay off credit cards
- Increase savings to one month’s living expenses
Proverbs 22:7
“The borrower is servant to the lender.”
WHICH DO I DO FIRST?
Work on your savings and credit cards at the same time.
When you meet one of the goals, put that money toward the other goal.
This will accelerate your progress.
CHARGE!
Average credit card debt
- The average credit card holder has more then six cards
- They owe more than $9,300
- There are now more than five billion credit cards solicitation each year.
Credit card spending mentality
- People spend about 1/3 more when they use credit cards rather than cash.
- Credit cards seem painless, not like parting with real money.
Slow repayment
- About 35 million Americans only pay the required minimum each month.
- If you pay only the minimum at 18% interest it will take an average of 20 years to pay off a credit card.
- I once reviewed one of my own credit cards.
- I noticed that out of a $177 monthly payment only $17 a month was going to the principle.
- This motivated me to pay it off quickly.
PAY OFF THE PLASTIC
Can you handle having a credit card?
Ask yourself: - Do you pay off the balance each month?
- If not, credit cards are too dangerous for you.
- “On average, 39% of Americans pay their credit cards in full each month, this means around 60% carry a credit card balance” (cardrating.com).
- Leaving a little debt left over each month adds up over time.
- With high interest rates, repayment takes forever.
- It may be time for plastic surgery.
- Call to close your account so they cannot send you a new card.
Students with Credit Cards
- “25% of college students who own a credit card, used their card to pay for tuition” (Dave Ramsey)
- “Vince once signed up for a credit card his Sophomore year at college to get the free campus t-shirt. He wasn’t going to use the cards unless there was an emergency, but there was an ‘emergency’ every week, and soon he was $15,000 deeper in debt” (Ramsey).
- “The American Bankruptcy Institute revels that 19% of the people who filed for bankruptcy last year were college students” (Ramsey).
Cancel the cards
- You can live without credit cards. Really!
- A debit card will do everything that a credit card can do.
- “Visa’s Zero Liability Policy: Require the member bank to give the debit card the exact same protections in cases of theft or fraud” (Ramsey).
- Using a debit card feels more like using money when you know your checking account is immediately affected.
- Do not call registry: DoNotCall.gov
- Opt out of junk mail: 1-888-5OPT-OUT
Snowball the credit cards
- The first step is to stop borrowing.
THE SNOWBALL STRATEGY
Pay off smallest high interest debt first.
- The advantage to paying off the one with the lowest balance first is for encouragement.
- Dave Ramsey says, “Sometimes motivation is more important than math.”
- “You need quick wins to get fired up” (Ramsey).
- One thing Larry Burket use to say is to double or add to that one card if possible.
- Paying only the minimum balance may take years even on a card with a low balance.
When you pay one off, add that payment to another card.
- The temptation when paying off a credit card is to spend that extra money.
- Roll that payment on to another card.
See example - Next slide
SNOWBALL THE PAYMENTS
Min. Extra Total
Card 1 $30 $20 $50
Card 2 $80 $50 $130
Card 3 $75 $130 $205
Card 4 $100 $205 $305
All this is accomplished by only paying $20 extra a month and rolling over payments from cards you pay off
Accelerate the snowball.
- You will start to get excited when you see this start to work.
- You may need to speed up the process by selling something you own that you can do without and applying that money to your credit card debt.
- “A good rule of thumb on items (except the house) is this: if you can’t be debt-free on it (not counting the home) in eighteen to twenty months, sell it” (Ramsey).
- “Get gazelle-intense and sell so much stuff that the kids are afraid they are next” (Ramsey).
- “The gazelle’s primary hunter is the fastest mammal on dry ground, yet the gazelle wins almost every time. Likewise, the way out of debt is to outmaneuver the enemy and run for your life” (Ramsey).
- You may need to down size to a less expensive car or even a less expensive house.
Should I keep my car (Dave Ramsey’s Advice)
#1 Is the total payments on all your vehicles (include recreational) equal more than half of your annual income? Is so sell and downsize.
#2 Can you be debt free (except for your home) is less than two years? If so, keep the car(s).
- This will greatly decrease the time it will take until your credit cards are paid off!
- If you need to sell your car, by one for whatever cash you can and drive it until you are debt free. Then save up to buy one with cash.
- “The major elements of making the Debt Snowball work are using a budget, getting current before you start, smallest-to-largest payoff (no cheating), sacrifice, and focused intensity” (Ramsey).
More Income
- This will obviously accelerate the snow ball
- Can you get a higher paying job?
- Make sue it is in place before you quit!
- Take a second or third job and use 100% of that money to attack your debt.
- This will turn it into a debt avalanche!
Other Advice
- Stop saving for retirement temporarily.
- Put that money toward your debt, even if the company matches it (Ramsey).
- Focused intensity is powerful!
- Does your debt snowball look like it will take longer than you want?
- It may not take as long as the math seems to indicate (Ramsey).
- Many people find a way to shorten the time by sheer intensity (Ramsey).
- God tends to poor blessings on people going in the direction He wants them to go (Ramsey).
Transfer balances to a better card.
- Find a card with better interests rates.
- Find out if there are any transfer or annual fees.
- If so, are they worth the transfer?
- Beware of introductory rates, read the fine print.
- Once you’ve made the transfer, be sure to cancel the other card.
- Otherwise you will be tempted to charge it back up.
- “Beware of debt-management companies like AmeriDebt and Consumer Credit Counseling that advertise on TV” (Ramsey).
- “They can help you get better interest rates and lower payments but at a price” (Ramsey).
- “When you use one of these companies and then try to get a Conventional, FHA, or VA loan, you will be treated the same as if you have filed Chapter 13 Bankruptcy” (Ramsey).
Develop a debt repayment schedule.
- Divide the balance of a credit card by the amount of principal you pay each month.
- Principal = Payment - Interest
- This will tell you how many months it will take you to pay off each card.
- Factor in extra payments with the snowball strategy.
- Find out how much quicker you will pay off your credit cards with just a little extra effort.
- You can find debt repayment calculators online at crown.org
Review your credit report.
- Late or missed payments, foreclosures or repossessions remain part of your credit report for 7 years.
- Bankruptcy stays on for 10 years.
- Tax liens stay on for 15 years.
- Everyone should get a copy of their credit report at least once a year.
- Contact: AnnualCreditReport.com or 877-322-8228.
- You can get one free report each year.
- Reviewing this will help prevent identity theft as well.
- I once discovered that when I moved, an office supply credit company had made a mistake on my new address. I never received the bills and thought it was paid off since I rarely used it. I went to apply for a loan once and was rejected. When I reviewed by credit report, I discovered the debt that was listed as delinquent. I only owed $50 but it hurt my credit. Fortunately, I was able to quickly pay it off and have the merchant send a letter to have the blemish removed from my report.
Credit Score
- Your credit score is a number banks use when approving or setting the rates for loans.
- Your score may be high enough to get credit but not high enough to get a decent rate.
- Your FICO score ranges from 300 - 850. 700 or higher is a good score.
- You will most likely have to pay a fee to receive your credit score.
- A low score can lead to much higher interest rates.
- For example, you could pay as much as 3% more on a home loan.
- On a $100,000 mortgage, this will cost you $200 more per month and $72,000 over the life of the loan!
- Don’t make the mistake of making your FICO score your main priority.
- The only way to get this number up is to get in more debt and pay it off on time (Ramsey).
- The FICO score is really only a customer rating system of the banks.
- They make money by keeping people in debt.
- You need to get into the mind frame of debt free living.
- Forbes magazine did a survey of the 400 richest people in America. They were asked what the most important factor was in them becoming rich. The majority responded, “Get tout of debt and stay out of debt.”
- Staying out of debt will cause you FICO score to go down but your peace and quality of living to increase.
- FICO isn’t everything.
ASSIGNMENT FOR NEXT WEEK
- Finish working on your budget listing all your expenses you can.
- Review your credit report.
AnnualCreditReport.com or 877-322-8228
