Debt Management

• Part 1: The foundation

• Part 2: Elimination!!!

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W. Tong (082 922 5269 / wtong@vodamail.co.za)

Part 1 – The foundation

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Is your debt managing you? OR Are you managing your debt?

Prov 22:7 “Poor people are slaves of the rich. Borrow money and you are the lender’s slave.” (Good News Bible)

Gal 5:1 For freedom did Christ set us free: stand fast therefore, and be not entangled again in a yoke of bondage. (ASV)

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1. Debt borrows from the future

2. Debt can add or lead to stress

3. Debt limits freedom – today & in the future

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““Before it can be solved a problem must be clearly Before it can be solved a problem must be clearly defined” – William Featherdefined” – William Feather

1. You don’t open your “window” mail2. You roll your debts3. You are regularly in overdraft4. You use your credit card to draw cash5. You never pay at least the minimum6. You only pay the interest portion on your

loans7. You use one credit card to pay another8. You max your borrowing facilities9. You consolidate your debt on your bond

facility

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“The whole idea of motivation is a trap. Forget motivation. Just do it. Exercise, lose weight, test your blood sugar, or whatever. Do it without motivation. And then, guess what? After you start doing the thing, that's when the motivation comes and makes it easy for you to keep on doing it.”

John Maxwell

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Part 2 – Elimination!!!

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“Most people spend more time planning their summer holidays than planning their lives” - Unknown

Basic rules1. Stop any new debt! Be content with

what you have (Phil 4:11-13)!2. Stick to the plan! Discipline!3. Control your expenses! Live within

your means!4. Save for emergencies!5. Set goals – eg. ± 1 year small debt,

7 years for big debt

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“Yard by yard, life is hard; but inch by inch, it’s a cinch” – Robert Schuller

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1.1. Continue paying required minimum on all debts!Continue paying required minimum on all debts!2.2. Free up cash from budget to accelerate pmt of debt Free up cash from budget to accelerate pmt of debt

OR set an accelerator margin,say +/- 10% of grossOR set an accelerator margin,say +/- 10% of gross3.3. List all debts – largest balance to smallest balance List all debts – largest balance to smallest balance 4.4. Next to each debt enter monthly minimum paymentNext to each debt enter monthly minimum payment5.5. Divide the balance owing by the minimum payment Divide the balance owing by the minimum payment

to arrive at the payment ratioto arrive at the payment ratio6.6. Rank the debt balances from lowest payment ratio Rank the debt balances from lowest payment ratio

to highest payment ratioto highest payment ratio

“Yard by yard, life is hard; but inch by inch, it’s a cinch” – Robert Schuller

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7.7. Start applying accelerator cash from lowest rank to Start applying accelerator cash from lowest rank to highest rankhighest rank

8.8. Once lowest rank is paid off; Double up / increase Once lowest rank is paid off; Double up / increase payments on the next ranked debt payments on the next ranked debt

9.9. Pay free cash on next target on list – create a Pay free cash on next target on list – create a snowball effect of money! snowball effect of money!

10.10.If an emergency arises If an emergency arises attend to it then resume! attend to it then resume! Or Or make sure some saving occurs in the mean time!make sure some saving occurs in the mean time!

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Determining rankA B C D = B / C E

Who do I owe? Balance Owed

Min Monthly Pmt Due

Pmt Ratio

Rank

ABSA Home Loans 250,000 -3,292 76 6

ABSA Motorvehicle Finance 68,000 -2,357 29 5

Discovery Credit Card 3,400 -450 8 2

Edgars 6,096 -350 17 4

Woolworths 500 -100 5 1

ABSA Bank Overdraft 7,500 -550 14 3

Totals 335,496 -7,099

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Ranked in orderA B C D = B / C E

Who do I owe? Balance Owed

Min Monthly Pmt Due

Pmt Ratio

Rank

Woolworths 500 -100 5 1 Discovery Credit Card 3,400 -450 8 2 ABSA Bank Overdraft 7,500 -550 14 3 Edgars 6,096 -350 17 4 ABSA Motorvehicle Finance 68,000 -2,357 29 5 ABSA Home Loans 250,000 -3,292 76 6 Totals 335,496 -7,099

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Paying it off

Assume - freed cash 750 850 850 1,300 1,300 1,300 A B C D = B / C 1 2 3 4 5 6

Who do I owe? Balance Owed

Min Monthly Pmt Due

Pmt Ratio

Pmt Pmt Pmt Pmt Pmt Pmt

Woolworths 500 -100 5 -400 - - - - - Discovery Credit Card 3,400 -450 8 -350 -850 -850 - - - ABSA Bank Overdraft 7,500 -550 14 - - - -1,300 -1,300 -1,300 Edgars 6,096 -350 17 - - - - - - ABSA Motorvehicle Finance 68,000 -2,357 29 - - - - - - ABSA Home Loans 250,000 -3,292 76 - - - - - - Totals 335,496 -7,099 -750 -850 -850 -1,300 -1,300 -1,300

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Balance check

Who do I owe? Initial balance 1 2 3 4 5 6

Woolworths 500 - - - - - - Discovery Credit Card 3,400 2,600 1,300 - - - - ABSA Bank Overdraft 7,500 6,950 6,400 5,850 4,000 2,150 300 Edgars 6,096 5,746 5,396 5,046 4,696 4,346 3,996 ABSA Motorvehicle Finance 68,000 65,643 63,286 60,928 58,571 56,214 53,857 ABSA Home Loans 250,000 246,708 243,416 240,124 236,832 233,540 230,248 Totals 335,496 327,647 319,798 311,948 304,099 296,250 288,401

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House loan / bondHouse loan / bond1.1.You can pay a house off in 7 years!You can pay a house off in 7 years!

2.2.Do not over capitalise! Borrow littleDo not over capitalise! Borrow little

3.3.Your personal house doesn’t generate Your personal house doesn’t generate incomeincome

4.4.Location is importantLocation is important

5.5.Pay as big a deposit as possiblePay as big a deposit as possible

6.6.Make use of access bond facilitiesMake use of access bond facilities

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House 1 House 2 House 3Capital 450,000 750,000 1,000,000 Period - yrs 20 20 20 Period - mnth 240 240 240 Interest rate 15% 15% 15%Monthly pmt -5,926 -9,876 -13,168

Total pmts -1,422,133 -2,370,221 -3,160,295 Interest paid -972,133 -1,620,221 -2,160,295 Int as % of total pmts 68% 68% 68%Times paid 3.2 3.2 3.2

Interest rate & payments

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Interest savings by increasing monthly payments

House 1 Basic Increase 1 Increase 2 Increase 3 Increase 4Increase pmt by -250 -500 -1000 -2000

Capital 450,000 Period - yrs 20 16.2 14.0 11.2 8.3Period - mnth 240 195 168 135 100 Interest rate 15%Monthly pmt -5,926 -6,176 -6,426 -6,926 -7,926

Total pmts -1,422,133 -1,201,767 -1,077,296 -932,379 -789,168 Interest paid -972,133 -751,767 -627,296 -482,379 -339,168

Interest saving 220,366 344,837 489,754 632,965 Int as % of total pmts 68% 63% 58% 52% 43%Times paid 3.2 2.7 2.4 2.1 1.8

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Summary:

• It pays to pay off your bond early!

• Debt costs a lot – stress, freedom, future potential, interest paid!

• Endeavour to live debt free!!!

BOOKS: G . Edward Reid, “It’s your money isn’t it?”, Review and Herald Publishing

Association, 1993 Larry Burkett, “How to Manage Your Money”, Moody Press, 1991 Larry Burkett, “Debt Free Living”, Moody Publishers, 2001 Larry Burkett, “Complete Financial Guide for Young Couples: A Lifetime

Approach to Spending, Saving and Investing”, Chariot Victor Publishers, 1993 Trump University, “Wealth Building 101”, J Wiley & Sons, 2007 Robert Kyosaki with Sharon L Lechter, “Retire Young, Retire Rich”, Warner

Books, 2002 Robert Kyosaki with Sharon L Lechter, “Cashflow Quadrant”, Warner Books,

1999

WEBSITES: Crown Financial Ministries, www.crown.org http://www.easypersonalfinance.com www.johnburley.com/trump http://www.moneybiz.co.za/personal_finance/personal_finance.asp?

PersonalFinanceID=9 http://www.finforum.co.za/perfinan.htm

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Thank you for your participation

My contact details:

• Cell: 082 922 5269

• Email: wtong@vodamail.co.za

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