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F.A.R.E. Debt Education

F.A.R.E.’s mission is to provide exceptional debt education, to ensure financial independence, foster financial responsibility and to improve the quality of life for the betterment of society

Before you start the module 5, let’s do a quick review.

In Module 1, we discussed Maslow’s Hierarchy of Needs and in “Guide to Better Budgeting,” we discussed the importance of creating and maintaining a spending plan.

We continued that discussion in Module 3, “You and Your Credit”, by identifying how Credit Scoring and Credit Ratings were created.

In Module 4, “The Other Side of Credit”, we discussed:

  • Interest Rates, Grace Periods, and Annual Percentage rates and how they impact the credit we get and what we pay.
  • We discussed the Truth in Lending Act, The Fair Debt Collection Practices Act, and the Fair Credit Billing Act and how they benefit and protect the consumer.
  • We discussed the dangers of pre-approved credit cards, late fees, and over-the-limit fees and how to find them.

In the Module 5, we will discuss continuing on the path to financial freedom in “Life after Debt”

Life After Debt!

Two questions we need to ask ourselves:

Why do we find it so hard to live within our means?

  • Comparison with others. (I have to have what they have to be happy!)
  • Wrong priorities (My “needs” are actually just my “wants”)
  • Misplaced values (Possessions are more important than?)
  • Impulse living (If it feels good, buy it!)

How can we get rid of and stay out of debt?

Getting rid of debt will involve three basic financial principles:

  • PURPOSE – Why do I want to get out and stay out of debt?
  • PLANNING – What do I currently owe, what will it take to pay it back?
  • DISCIPLINE – What daily lifestyle changes do I need to make to get the job done?

Staying on Track

Now that you are on the right track, let?s look at some areas that are vital in attaining and maintaining your financial freedom.

  • Acquiring new Credit
  • Paying bills on time
  • Knowing where your money is going
  • “Pay Yourself First”

Let’s take a closer look at these areas.

“Pick a card” (but not just any card)

If you are out of debt and decide to get a credit card for emergencies remember to get the following information and compare cards:

  • Finance Charges in dollars and annual percentage rate (APR)
  • Company providing the credit line
  • Size of credit line
  • Length of grace period
  • Minimum payment required
  • Annual fees, if applicable
  • Fees for credit insurance (if any)

Once you choose a card:

Don’t forget about specifics like late charges and over-the-limit fees. Consider these factors along with how you pay your bills each month.

Read the Fine Print

Late fees, overdraft charges, rate increases that come unannounced and seemingly without cause. Old debts mysteriously appearing on new credit cards.

Like it or not, these credit card surprises are usually completely legal because the card issuer warned the card-holder in advance that they had the right to do so.

So the question for card holders is, how do you avoid all this and protect yourself from unexpected charges, rate increases and the like? The answer is one you’ve undoubtedly heard before.


A 2006 survey by Braun Research found that:

  • 33% of consumers can’t read or understand disclosure, or “fine print”
  • 20% couldn’t find critical terms
  • 44% did not know the APR on their cards
  • 20% didn’t know their credit limit
  • 70% were unaware of “universal default” policies

Source: Braun Research, 2006

Pay the bill

After you have “paid yourself”, pay the bills!

Pay more than monthly minimum:

  • You can save or invest the money you were using to pay that monthly bill.
  • You can save potentially hundreds of dollars in compounded interest.
  • Paying-off your bills is great motivation for sticking to your budget.
  • Use the extra money to buy something you or your family want after your monthly needs have been met.

Know Where Your Money Goes

Whether it’s $20 or $200 you should always be able to account for where your money goes.

  • Keep your receipts in a central location and make sure your purchases are noted.
  • Big purchases should be discussed realistically and not rushed into.
  • Stay involved. Even if your not the primary person keeping track of the budget.

Financial Responsibility and Financial Freedom go hand in hand.

Pay Yourself First

Now that you are budgeting to save – what’s next…

Saving and investing! You have identified an amount to save monthly so, where are you going to put it? By investing, you put the money you save to work making more money.

The simplest way to begin earning money on your savings is to open a savings account at a financial institution. You can take advantage of compound interest, with no risk.

Types of Savings accounts include:

  • Savings Account – access your money anytime, earns interest, insured
  • Money Market Savings Account – earns interest no fees on minimum balance, may offer check-writing services, insured
  • Certificate of Deposit (CD) – earns interest during term (3 months, 6 months, etc.), must leave your money for entire term to avoid penalty, principal and interest available at the end of the term, interest.

Rule of 72

The Rule of 72 tells you the number of years it takes to double you money regardless of the interest rate. In reverse it also tells you the true costs for credit by the same rule.

Equation : 72 divided by % interest equals the # of years to double the investment.

Example: If you invest $1000.00 at 9% – 72 divided by 9% interest equals 8 years to double your investment to $2000.00

Crisis Happens!

Yes! Crisis Happens to everyone (even the debt-free) at one time or another. Because creditors aggressively call demanding immediate ?check by phone? payments, consumers often panic and use mortgage , auto, or utility payment moneys to pay credit card (unsecured) debt. Consequently, their checking account is depleted to the point that they have insufficient funds to cover their secured debts. Knowing which bills are most critical and what to pay first can help establish priorities for your spending patterns and bring you to a real world perspective.

Recommended Priority Schedule for Bill Payments

  • Pay all secured debts first – Mortgage/Car/Student Loans
  • Pay unsecured debts with remaining funds – Credit cards, Small Finance Companies
  • Pay Medical and Personal debts with whatever remains – Hospital Bills, Family and Friends


Have Fun!!

  • Celebrate Successes
  • Don?t dwell on Setbacks
  • Keep learning-Stay Informed
  • Share what you have learned
  • Give back

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