PowerPay: Consumer Debt Reduction Software for Extension Educators

Extension educators have traditionally focused their efforts on the demonstration method of teaching. Seaman Knapp laid the foundation for this tradition at the beginning of this century by establishing demonstration projects on private land throughout the south to help farmers adopt new farming practices. Extension educators used this traditional approach in a new way in Utah County to bridge a gap between concept and practice as part of Extension financial management education.

Many families are concerned about their financial health. The imprudent use of credit cards and/or other charge accounts cause worry about financial survival. Financial counselors and educators frequently present the concept of power payments to families who want to get out of debt. The basis of the power payment debt reduction idea is that consumers should avoid new debt and hold constant the amount of money going toward debt payment. No new money for debt reduction is required. After one creditor is paid off that monthly payment is added to the payment for another creditor. This "roll over" procedure continues until all debts are retired. This practice can save hundreds of dollars.

We observed, however, that teaching the concept or using general examples was not good enough. Families needed more motivation to overcome their feelings of hopelessness. Research in Hawaii indicated that presentation of a particularly promising solution could lessen the feelings of helplessness and assist people to accept recovery plans (Wall, 1992). The obvious answer to us was to provide that promising solution by showing consumers, for their individual circumstances, just how much money they could save and how much quicker they could be out of debt by using power payments.

Unfortunately, that approach was not feasible. For families with just six or seven debts, hours of calculator work were required to determine just one repayment plan. To consider several "what-if" alternatives was far too time consuming.

This obstacle was overcome by developing computer software that uses a family's specific debt information to show the benefits of power payments. In other words a sort of "demonstration plot" for the individual consumer where he or she could see the impacts of power payments on his or her own "property."

The software evolved in Utah County from spreadsheet templates to a DOS-Based product called PowerPay. PowerPay uses the balance, monthly payment, and annual interest rate for all of the debts in question. The program constructs amortization tables for each debt to determine payment allocations. As a debt is projected to be paid off, that debt's monthly payment is directed to a different debt according to a selected sequence.

The debts are paid according to highest interest rate first, lowest balance first, shortest term first, or in a customized order entered into the computer. Total costs and repayment time for debt reduction with power payments are compared to costs and repayment time without power payments. Users quickly see the impact of various repayment sequences.

PowerPay provides several printouts, all of which can be customized to reflect the name of the institution providing the assistance. The repayment summary compares savings for each creditor. A repayment calendar provides a monthly projection of the dollar amounts going to each creditor. The options comparison gives a quick look at the benefits of each of the repayment alternatives.

PowerPay has several additional educational features. Amortization tables for each creditor can show consumers the proportion of each payment that goes toward interest and principal. Another feature enables users to compare the total cost and repayment time to pay off a creditor making only the required minimum payment against a more accelerated approach. There is also an option that evaluates the costs and benefits of debt consolidation. Additionally consumers can see the impact of paying an additional monthly amount or adding a substantial one time payment (such as an income tax refund) to their debt repayment plan.

PowerPay has been widely used throughout the world by several military support groups. It has also been incorporated into Extension programming in several states.

The PowerPay software packet, available for $20 through the Utah State University Bulletin Room, Logan, UT 84322-4800, includes the software, users guide, and a set of overhead masters and script prepared by Michigan State University. The overheads and script provide a ready-to-use primer on consumer debt for Extension educators who may not have a strong background in that area but are still interested in meeting consumer demand for help with family finances.

Wall, Ronald W. (1992) Dealing with Resistive Clients: Perspectives for Financial Counselors. Proceedings of the Association for Financial Counseling and Planning Education.