Debt Management Strategies

Smarter Strategies and Better Results

Meet Billy and Sally. This is one of our Financial Planning Case Studies in Money Study Group, and online course for students of Personal Finance at the Bauer College of Business at THE University of Houston. Below is our “Credit Crush” assignment. This case study helps to illustrate some of the debt management strategies you can use to move the needle on your financial plan.

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Part One: Researching Your Financial Future

In order to get full credit in this week’s assignment, you’ll need to research the following information:

 

• Your Annual Income AFTER you graduate

• Based on your major

• Based on your industry

• What is the average % of one’s income spent on Housing costs?

• What are the basic categories needed in every household budget?

• What are the average costs for each budget category?

  • Housing

  • Food

  • Utilities

  • Clothes

  • Taxes

  • Phone

  • Insurance

  • Maintenance

  • What are you missing?

Capstone Next Steps

This week, you’re going to assume you’ve already graduated and you’re earning whatever amount you hope to be earning once you’ve landed your dream job.

 

Your Income

• What is the average income for your major?

• What income are you using for your plan?

• What % of your income are you using for your mortgage in this assignment?

Three Big Purchases for This Week’s Planning Portal

1. Buy your dream house

2. Buy that car you always wanted

3. Rack up some serious debt on your New Credit Card

 

The Mortgage on Your Home

• What % will go toward your Mortgage

• Buy the biggest house you can afford

• Your Mortgage Information

  • Total Purchase Price of your Home

  • How Many Years for your mortgage

    • 30 years

    • 15 years

Your New Home, and Mortgage

• Why did you choose your house

• How did you come up with that mortgage payment

• What Interest Rate are you using on your mortgage?

• How many years is your mortgage?

Your New Ride

• Why did you choose that car?

• How did you come up with that financing?

• What is the interest rate on your car loan?

Your Credit Card

• What is the balance on your “pretend” credit card for this week’s assignment — I’m looking for anywhere from $5k to $25k for most students

• How did you come up with that interest rate? (I’m looking for any where from 12% — 30%)

4 Screenshots to Include from Your Planning Portal

• Income

• Mortgage Loan

• Car Loan

• Credit Card Account

Week 6 Credit Crush Assignment

 

Now that you’ve moved out on your own, invested in your dream house, purchased your cool ride, and racked up some credit card debt, let’s learn a few debt payment strategies to help you move toward your goal of becoming a millionaire by age 50.

 

Credit Crush Assignment Instructions

The Big Idea

The Credit Crush Assignment is all about understanding the cost of credit and how to apply simple strategies to eliminate debt so that you can build wealth.

 

Desired Outcomes

• Understand The Cost of Credit

• Identify Simple Strategies for Debt Management

• Eliminate Debt/Become 100% Debt Free

• Build Wealth by Investing Instead of Paying Interest

Step One — Update Your Data Cards

• Mortgage

   

  • Loan Type = Mortgage

  • Original Amount of Loan

  • Monthly Payment

  • Balance

  • Interest Rate

  • Loan Term — 15 or 30 Year

• Car Loan

   

  • Loan Name = Type of Car

  • Loan Type = Car Loan

  • Monthly Payment

  • Balance

  • Interest Rate

• Credit Card

   

  • Account Name

  • Balance (at least $10k)

  • APR — Annual % Rate (at least 10%)

  • Student Loan (optional)

Step Two — Take BEFORE ScreenShots of Your Data Cards

 

If your data cards were correctly completed from last week’s assignment, just pop those images into this week’s article. If you made updates to your data cards, be sure to create a new, updated screenshot of your data cards:

 

• Mortgage

• Car Loan

• Credit Card

• Student Loan (optional)

Step Three Review Debt Management

Before You Apply Any Action Items, review the following elements in the Debt Management section of your plan. You’ll need to grab a “BEFORE” screenshot of these elements.

• Strategy

   

  • Balance of selected debt — grab a screenshot

  • Payment

  • Proposed payments for next month — grab a screenshot

  • Details — Before (Annual works better than Monthly)

Remember to Grab a “Before” Screenshot of each of your Data Cards which you will compare with the “After” Screenshots.

Mortgage

Don’t forget — grab a screenshot!

Car Loan

Don’t forget — grab a screenshot!

Credit Card

Don’t forget — grab a screenshot!

Student Loan (Optional)

Don’t forget — grab a screenshot!

Step Four — Review Action Items

• Proposed payment strategy

• Current total monthly payment

• Proposed total monthly payment

These are the same because you have not yet applied any payment strategies.

Payment Priority Options

• Same Priority for All Debt

• Highest to Lowest Interest Rate

• Lowest to Highest Balance

Step Five — Time to Crush Your Credit!

• Change Payment Priority

Instead of Same Priority for All Debt, Choose Highest to Lowest Interest Rate.

Compare Before and After

• Mortgage

  Don’t forget — grab an AFTER screenshot!

• Car Loan

  Don’t forget — grab an AFTER screenshot!

• Credit Card

  Don’t forget — grab an AFTER screenshot!

• Student Loan (Optional)

  Don’t forget — grab an AFTER screenshot!

Step Six — Tell Me What You See

• Mortgage

• Car Loan

• Credit Card

• Student Loan (optional)

• Overall Results

• Total savings of How Much $$$

• Debt Free in ?? Months Sooner

Add Your Own Strategy

Add your own “Proposed additional monthly payment” and tell me what you learned in Your Credit Crush Assignment.