Finances

Exercises

Taking Charge of Debt

Activity 1: Knowing What Is on Your Credit Report

Many people know about credit reports and they know that lenders look at a credit report before they grant a loan to a person. The credit report provides detailed history of information about what was and is owed to other lenders and also includes information about any missed or late payments to those lenders.

Most of us know our credit status, but occasionally when we look at a credit report we realize there are outstanding debts that we thought we had paid off. We may also find that the credit report is inaccurate and will give potential lenders inaccurate information about one's credit history. Finding out that a credit report is inaccurate provides an opportunity to correct errors before trying to make a major purchase such as a house or car.

Personal credit reports can be ordered from one of the major credit reporting agencies: Equifax at (800) 685-1111, TransUnion at (800) 888-4213, or Experian at (888) 397-3742).

Activity 2: Sharing What You Owe

Talking about money can be difficult. Completing the Communication Module may be useful before completing this exercise. Use the worksheet Who Owes What? to help you determine what you owe as a couple.

In preparation for completing the worksheet, each person may need to go through their bills and financial paper work to gather the necessary information. When you have gathered the information, set aside a sufficient amount of time to sit down together and to complete the worksheet and talk about what you have found. If you have completed Activity 1, you may also use the information found on your credit report to help you complete this worksheet.

When you have completed the worksheet, use the following questions as a way to begin to talk about action you might want to take to deal with the debt:

• Is this debt manageable, or should we develop a plan to reduce or eliminate the debt?
• If one of the following events should occur, would our debt create difficulties in our marriage or family life?
1. A job lay-off
2. An unexpected major expense (e.g., needing a new car, roof, or furnace)
3. A medical problem that required time away from work without pay
• If we wanted to make a major purchase such as a home, would current debt keep us from doing so?

If you decide as a couple that you want to take action to decrease or eliminate your debt, Activity 3 will provide information about how to do that.

Activity 3: Reducing or Eliminating Your Debt

Couples may decide that they want to reduce or eliminate debt before marriage. Here is how one person accomplished that goal:

Example: Jack's Story

Upon graduating from college, Jack was $15,000 in debt. He was also recently engaged to be married. Jack's debt included student loans, a car loan, and some credit card debt. Jack was fortunate enough to get a permanent job offer from the local accounting firm where he had worked as an intern while he was in school. Rather than getting an apartment of his own, or a new car, or some other "well deserved" luxury item for himself as a reward for graduating and finding full-time employment, Jack stayed put. Jack continued to live in the same apartment he had been sharing with three roommates. The rent was reasonable and they were able to share utility costs. Jack also decided to prepare most of his own meals, including brown bag lunches, instead of eating out. By maintaining his modest style of living, Jack was able to quickly pay off his credit card debt. He paid it first since it had the highest interest rate. He then applied those payments to his car loan, and once the car was paid off he put all of his extra money towards paying his student loans. One year after graduating Jack was married and he began his marriage debt free.

There are several things that Jack did to eliminate his debt and they are principles for eliminating debt as an individual or a couple. These principles include:

• Do not do anything to add to debt.
• Identify ways to live on less, cut spending, and use the money saved to pay off debt.
• Pay off bills that have the highest interest rates first.
• Once a bill is paid off, apply the money for the paid-off bill to another bill.

Whether you are planning a marriage or are already married, the principles identified above can be used to reduce or eliminate debt. You can also use the following step-by-step process to reduce or eliminate debt.

1. Identify a debt item or items you want to eliminate as an individual or as a couple. An item with the highest interest rate may be a good choice, or a debt with a relatively small balance.
2. Set a time by which to eliminate the debt and calculate the amount of money to put towards that debt each month.
3. Identify specific things you spend money on now, that could be decreased or eliminated to free up money for reducing the debt.
4. Try the plan for three months. Evaluate how it is working.
5. Adjust the plan, if necessary, to realistically achieve your goal.

Much of the information in Modules 3 - 5 of the finance section will be helpful in reducing or eliminating debt.