Lesson 1 - Organize Debts

Objective: organize all debts by listing amount owed, to which company, interest rates, monthly payments, months behind, and possible collateral, listing from top to bottom those with the highest personal priority (paying high-interest first, high monthly payment first, collateralized loans first, debts in arrears first, whatever fits the values of the individual).

Now we’ll move on and start discussing managing credit accounts and debts in this cluster. For many, it’s easier to push that scary pile of bills to the side and avoid them; out of sight, out of mind. Unfortunately, that can be one of the worst things to do! The longer you wait to deal with your debt, the less options you have, and the more severe the consequences.  The first step to addressing your debt is organization. Using forms like the one from My Money – Lesson 3, or www.powerpay.org, you should write down all of your outstanding debts, being sure you, at minimum, include the following information: the company/who you owe, the amount owed, the monthly payment, the interest rate, the amount you’re past due, and any collateral – collateral being anything you would have to give up if you missed too many payments. Once you have that list, you need to prioritize your debts. Which debts should be highest priority can vary from person to person, but there’s a couple things to consider – paying off high interest debts first will allow to you pay less total interest in the long run, focusing on collateralized debt will prevent you from having your assets repossessed, and paying off the high monthly payment debts will allow you more financial flexibility once they are paid off. In the end, you’ll have to consider your own values when prioritizing, but you need to be sure to prioritize one way or another!

Example

In the example below, Carlos prioritized collateralized debts first, and then looked towards addressing high interest debts, such as credit cards.

Additional Notes: The first debt – ABC Bank, is a car loan, and is therefore a collateralized debt; if too many car payments are missed, the car is likely to be repossessed. MasterVisa is a credit card, and XYZ Credit Union is a personal loan, which is a couple months past due.

Assignment

Use your own personal financial debt and credit situation. Organize all debts, by listing amount owed, to which company, interest rates, monthly payments, and make a note of any possible collateral, listing from top to bottom those with the highest personal priority, based on your personal financial values.

Note: For this assignment, we would like you to use www.powerpay.org and to take screenshot, paste the screenshots into a Word document, and email the results. This link will provide you with instructions to creating screenshots. If you need any guidance with pasting images into a Word document, contact your course facilitator. In addition, the Word document should also include information on whether or not the debts are collateralized, and if any of the debts are past due. Your course facilitator will provide feedback via email.