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Breaking up with Debt: The Tale of Two Saras

BREAKING UP WITH DEBT: Gras the Meet Sara: NAME: SARA Sara's credit card troubles began innocently, like it happens to most of us. Before she knew it, she was looking at bills that seemed to triple each month – and she wasn't sure how it had AGE: 33 JOB: COMMUNICATIONS MANAGER NUMBER OF CREDIT CARDS BB 5 AVERAGE INTEREST RATE O18.2% gotten to that point. SO SHE DECIDES TO BREAK UP WITH DEBT. SALARY $35,000 CREDIT CARD DEBT $19,290 Scenario #1: Scenario #2: SARA ENROLLS IN A DEBT MANAGEMENT PLAN (DMP) SARA DECIDES TO HANDLE IT ON HER OWN – AFTER ALL, THINGS AREN'T THAT BAD. • With $19,290 in debt and an 18.2 interest rate, it'll cost Sara $765,35 month to pay her debtin 3 years AVERAGE interest rate: $765 $765 5765 5765 $765 $765 $765 far more than she can afford. PRIOR TO THE DMP DURING A DMP • Sara considers making only MINIMUM PAYMENTS, about $300/month. But.. it'd take her 242 months to pay off her debt - a little more than • Sara ultimately decides to make the same payments she would on a Debt Management Plan - $484 a month. • With her current interest rate, it takes Sara a little more than five years to pay *Average drop in interest rate: 18.2% 20 years! 8.5% 9.7%! off her debt. $184 $184 AVERAGE MONTHLY PAYMENT MONTHLY PAYMENT MONTHLY PAYMENT Three years later... Sara successfully completed her DMP four months ago. Now she's able to put $300 a month in her emergency savings account, and $200 in a 401 (k) that her company matches 100 percent. Sara from the second scenario is still waiting! So where is Sara now? Sara went from -$19,290 none to $2,800 just three years! DEBT in Since she completed her DMP in 32 months, Sara's been taking her former debt payment and putting it toward her savings accounts. Here's what she has: SAVINGS $1,200 LIQUID $1,600 RETIREMENT $500 $184 MONTHLY SAVINGS MONTHLY PAYMENT five years later... With more than $20,000 in savings, it's hard to believe that just five years ago she was almost $20,000 in debt! Sara paid off her debt a few years ago and has been focusing on building her savings. After five years, here is where she stands: Sarah from the second scenario is finally debt-free, but has no savings to show for. none DEBT none $7,808 LIQUID none $13,216 RETIREMENT none $21,024 *TOTAL SAVINGS none Now it's time to ask yourself... Where do YOU want to be in five years? For more information on Debt Management Plans, please visit Money CREDIT SEASON u Money Management ©2013 and Money INTERNATIONAL wwW.CREDITSEASON.COM Improving lives through financial education.

Breaking up with Debt: The Tale of Two Saras

shared by jlh609 on May 29
Sara is facing a personal financial crisis in the form of mounting credit card debt. Take a look at two scenarios Sara could use to pay off her debt.


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