Tag: debt

6 steps to ditching debt

Posted on

There’s nothing worse than feeling overwhelmed by debt. It is a harrowing experience which can often seem to have no end.

But there is a solution. It is never quick or easy, but you can get out of the debt mire.

Don’t accept debt as a way of life, take control of your money and secure your financial future.

Our six step debt diet will whip your finances into shape. Instead of cutting out carbs we want you to cut out credit. Instead of getting rid of kilos you’ll get rid of unwanted debt. Your budget is your training program, stick to it and you’ll be on your way to a whole new you.

STEP ONE: Face reality

Many people ignore their debt problems until it’s too late. The sooner you act, the better off you will be. Here’s a quick quiz. Are you;

  • Spending more than you earn each month and regularly dipping into savings
  • Putting day-to-day expenses on credit because you have no money
  • Only able to afford the minimum payment on the monthly credit card bill
  • Not prepared for unexpected expenses that crop up, like house and car repairs
  • Receiving legal notices in the mail
  • Taking menacing phone calls chasing payment
  • Enduring relationship instability such as marriage or relationship breakdown
  • Adopting bad lifestyle habits such as increased drinking, smoking and gambling

Be honest. These are all telltale signs of financial distress and a warning you must act now to resolve it. The worst thing you can do is ignore your debt problems until it’s too late, hoping things will work out for the best and your creditors won’t notice.

STEP TWO: Ask for help

If you’re in trouble, talk about it. Credit card companies and financial institutions will be much more lenient if they know you’re trying to tackle the problem.

Talk to them about a payment program to help you manage your debt. Ask if you can reduce or postpone some repayments, or pay less interest while you get on track.

STEP THREE: Control your spending

For the next month write down everything you spend and then examine what you’ve done. You will be amazed, and maybe a little horrified, at where your money has gone but I bet you’ll think twice in future.

Start living within your means so you don’t go further into debt. From now on use cash for everyday expenses like groceries, clothes and entertainment so you only spend what you have. Resist impulse buys and save up for big purchases.

If you’re going to struggle with the temptation of credit, get rid of it. Replace your credit card with a debit credit card. It allows you to purchase things online or over the phone like a regular credit card but only uses your own money… so you can’t go further into debt.

Kochie’s 8 step debt checklist

STEP FOUR: Stick to a budget

Balance your family budget and develop a debt reduction plan. The fastest way to pay off what you owe is to make extra repayments. Look at your budget and work out the maximum you can afford to pay off your debts every month.

Each pay period set aside money to cover your basic expenses such as food, transport, utilities, and rent or mortgage payments. Also contribute to an emergency account to cover any unexpected bills. Use the all the cash left over to pay down debts like your credit card bill.

If you’re not making much of dent in your overall debt you have to increase your income. Get a second or third job in the evenings or on the weekend until your debts have been cleared. Make sure all the extra money your earn goes towards paying them off.

STEP FIVE: Don’t fall in to the minimum trap

The monthly credit card bill looks horrific, but then you take comfort in the much smaller minimum balance owed. Big mistake. It will take years to eliminate your debts if you only make minimum repayments. Your credit card provider will charge you interest on the rest of your bill, adding to your overall debt.

STEP SIX: Pay off your most expensive debt first

It’s common sense, but pay off the debt with the highest interest rate first. Credit cards are charging up to 20 per cent interest, so focus on that debt to start with, then look at personal loans, which will be costing at least 10 per cent interest.

Don’t even think about saving or investing until you’ve paid off your bad debts. There’s no point playing the share market or investing in a managed fund when you’re being charged 20 per cent interest on your credit card debt.

Your home loan is probably your cheapest debt, at around 4 per cent. Borrowing to buy a home or invest in quality shares or property is generally considered to be good debt, and not as much of a concern.

If you have debt, you should have no savings. It should all go in to the credit cards or loans instead.

Think about it logically. Why have savings earning 3 per cent (at best) when you’re paying 4-18 per cent interest on home loans and outstanding credit card balances?

Your Questions Answered: How to Free Yourself From Debt

Posted on

My husband and I sought financial counselling last year. We had a LOT of debt. Subsequently my husband has gone bankrupt and I have consolidated my debt into my home loan (in my name only).

We need to eventually buy a bigger home as our 5th child is on the way. Now that our finances are more manageable we can now save. Our financial goals are:

  1. To save $5000 in savings
  2. To save for a home deposit in the next 3-5 years
  3. To pay off our mortgage (long-term goal).

Would it be better to put our savings into a high interest online savings account or open an offset account? Our mortgage is modest $285,000. Our combined taxable income is $140,000 pa.

I am also considering investing in shares once I have a savings nest. Would you recommend this?

Cheers, S

Hi S,

Thanks for writing in. Libby and I love this question because you and your husband have already proven you’re prepared to make the tough decisions when it comes to money.

It’s not always going to be easy to rectify bad habits and past mistakes, and you have to be prepared to make sacrifices, but we can tell you’ve got it in you!

Now that your debts are consolidated and your husband’s bankruptcy is in the past, you are quite rightly looking to the future and thinking about how to build wealth.

Your financial goals make a lot of sense, but we think you can go one better. Set a deadline for when you want to have saved that $5,000 emergency fund, and a specific date to have that home deposit. Once you set these dates, put a savings plan in place to help you get there, and make sure you stick to it.

The best place to store those savings at the moment is likely your mortgage offset account. Money in your offset account offsets your loan principle and saves you interest, meaning you’re earning an effective return equivalent to your home loan interest rate.

Not only is this rate likely higher than the rates on offer in high interest savings accounts, it’s also tax free, whereas interest earned in a savings account incurs tax at your marginal tax rate. The money is also readily accessible if you need to use it.

In regards to shares, we’d suggest looking into this when you have some savings behind you given the increased risks of investing.

Finally, good on you for going to see a financial counsellor, these people do an incredible job in the community.

Financial counselling is a free service offered by governments and some charities that connects people in financial difficulty with a money expert. It’s an invaluable service which has helped countless people, and you can find out more about it here.

The 5 biggest mistakes people make asking for a pay rise

Posted on

The start of a new working year is a great time to reflect on where your career is heading, and whether you’re getting paid enough to head there.

If you feel short changed, there’s really no avoiding having the uncomfortable conversation that every employee dreads… The pay negotiation.

To help you get through this tricky chat with both money in your pocket and the goodwill of your boss, here’s how to avoid the five biggest mistakes people make when negotiating a pay rise.

 

Unlock Kochie’s free video

How to Supercharge Your Savings!

 

1. Not considering the direction of the business

As an employee you are part of a team working towards a common set of goals, so it’s important to appreciate your role in achieving those goals.

Too many people see themselves as being independent of the business and frame their case for a pay rise in terms of their work, not how they’re contributing to the business’s future.

So before you march in asking for more money, talk to your manager and the people around you to find out what they need. What are they working towards and how can you help them deliver their targets?

2. Not completing a proper self-appraisal

The worst time to ask for a pay rise is when you’ve been underperforming, and yet so many employees wait until they’re upset about their pay cheque to pose the question, without regard for whether they’ve been exceeding expectations or not.

So regardless of how underpaid you feel right now, cool you heels and do a self-appraisal to see if you’ve been doing everything that’s asked of you, and a bit more.

If you haven’t been hitting targets, hold off while you work harder over the next four weeks to get yourself into a stronger negotiating position. This will also help you get a clearer picture of your strengths and contributions.

3. Undermining themselves

Pay negotiations can be uncomfortable, especially if there is no formal structure in place to guide the timing and process of performance reviews.

In this unfamiliar environment, a lot of people go into their shells and aren’t as confident in their pitch as they were when practicing in the mirror.  So much so, that they end up referring to negative aspects of their performance and using self-defeating language when making their case.

Try to overcome this tendency by reminding yourself that you do deserve a pay rise, your contribution is important and always referring to your projects and achievements in positive terms.

4. Not leaving room to move

Negotiations involve each party giving some ground on their initial position to try come to an agreement. Despite this fundamental principle, so many employees start with what they actually want, leaving themselves no room to move when negotiations begin.

By starting with a higher target than you would be happy with, you’re likely to end up with a better outcome.

It’s also important to look at alternatives to money, in case that’s not on the table, so spend some time working out what is valuable to you. Would you be happy with a phone, extra super contributions or flexible working hours in lieu of a bigger wage?

Remember, having alternatives and room to move from your original offer and still get what you want is an extremely valuable chip in negotiations.

5. Not formalising the process

The single biggest mistake people make in salary negotiations is treating them too casually. This is your livelihood, so you and your manager need to take it seriously.

This means providing warning by booking in a formal meeting, preparing yourself with a clear case for a pay rise, and following up. The last piece of the puzzle is where a lot of people fall down, so make sure you set out next steps at the end of the meeting.

Get a clear agreement on when you will follow up, anything you need to do to secure the raise and – ideally – when it will take effect. Good luck.

Kochie’s guide to good vs bad debt… and how to manage yours

Posted on

Debt…  it can lead to ruin, or riches. It’s all a matter of degree and how it’s used.

Used appropriately, debt can build wealth. Used inappropriately, debt can destroy wealth.

With so much talk among politicians and in the media about Australia’s national debt levels and our ongoing budget deficit, it got us thinking … how do you assess your own household debt and know when you’re in the danger zone?

As the Treasurer of your family budget, you are responsible for taking control of your debts. So here’s our guide on how to go about it.

 

Unlock Kochie’s free video

How to Supercharge Your Savings!

 

1. Understand the difference between good and bad debt

‘Good’ debt is money borrowed to buy something that will rise in value, bring in an income and create financial discipline. A good example is borrowing to buy a house.

Bad debt is money borrowed to fund everyday expenses like a holiday, or to buy an asset that will fall in value like a car.

But regardless of what the debt is, as Claire Mackay from Quantam Financial says, “a manageable level of debt is what doesn’t give you stress. If repayments and the end goal of having the loan repaid is overwhelming, that is not a good level of debt.”

2. The warning signs

When it comes to “bad” consumer debt, the warning signs are not being able to pay off credit card balances on time or the interest payments on a personal loan. They are tell tale indications your debt is getting out of control and you are in a debt spiral where the chances are that you won’t get out of it.

When it comes to “good” investment debt, you know you’re getting in over your head when you can’t meet the interest payments out of cash flow or the value of the asset falls below the value of the loan.

3. Borrow within your means at the start

The key figure is not how much you owe or how much you can borrow, but how much you can afford to repay.

If you haven’t done your budget, you don’t know how much you can afford to repay.

So start by putting together an accurate budget listing all income and expenses. As a general rule of thumb, Claire Mackay recommends 40 per cent of your money should be going towards housing costs (if you own your own home), 30 per cent to living and 30 per cent to saving for the future.

4. Take control of your spending

Australia has run a consistent budget deficit since the global financial crisis of 2008, which means as a nation we’re spending more than we’re earning (and using debt to keep the lights on).

So take a lesson from all those pollies in Canberra: don’t be like them.

Armed with your new budget, work out whether you’re in deficit or surplus. If you are in a deficit, look at what to cut to get back to the black.

The pie is what the pie is. What you can control is what you think of as essential living expenses and what you consider as nice to have.

5. Make extra repayments

Funnelling extra money into paying debts off early will save you big on interest and free up money to put towards building your wealth.

Start with the highest interest rate debts fist, because they are costing you the most.

For example, the average Australian credit card debt is $4,315. At an average interest rate of between 15—20 per cent that’s a guaranteed return of around $700 a year in saved interest … just by paying off your card.

Once your credit card is paid off in full, you can focus efforts into the next highest interest rate loan, for example a car loan.

6. Minimise the interest you pay

In a low interest rate environment, there are always opportunities to minimise the interest you pay, and that money is always better off in your pocket than the bank’s.

Compare the market for the best rate. Don’t be afraid to negotiate with your bank or switch to a better provider if the terms stack up.

And look for product features that can help you save on interest, like mortgage-offset accounts or credit card balance transfers.

As treasurer, if you can borrow within your means, control your spending and minimise bad debts and interest, you are managing debt effectively … certainly better than the mob in Canberra!

5 Steps to Ditch Your Debts

Posted on

With so much talk in the media about Australia’s national debt levels and our ongoing budget deficit, it got us thinking… how do you assess your own household debt?

As the treasurer of your family budget, you are responsible for taking control of your debts. So here’s our guide on how to go about it.

 

Next course starts soon!

Kochie’s 4 Week Money Makeover

 

1. Borrow within your means

According to treasurer Scott Morrison, Australia’s debt could blow out to AUD$1 trillion in the next ten years if the coalition’s budget savings measures are not passed.

But whether you’re the treasurer of an entire country or a family budget, the key figure is not how much you owe or how much you can borrow, but how much you can afford to repay.

Claire Mackay, financial planner at Quantum Financial, says, “If you haven’t done your budget, you don’t know how much you can afford to repay”.

So start by putting together an accurate budget listing all income and expenses. As a general rule of thumb, Claire recommends 40 per cent of your money should be going towards housing costs (if you own your own home), 30 per cent to living and 30 per cent to saving for the future.

2. Take control of your spending

Australia has run a consistent budget deficit since the global financial crisis of 2008, which means as a nation we’re spending more than we’re earning (and using debt to keep the lights on).

So take a lesson from all those pollies in Canberra: don’t be like them.

Armed with your new budget, work out whether you’re in deficit or surplus. If you are in a deficit, look at what to cut to get back to the black.

As Claire says, “The pie is what the pie is. What you can control is what you think of as essential living expenses and what you consider as nice to have.”

3. Understand the difference between good and bad debt

‘Good’ debt is money borrowed to buy something that will rise in value, bring in an income and create financial discipline. A good example is borrowing to buy a house.

Bad debt is money borrowed to fund everyday expenses like a holiday, or to buy an asset that will fall in value like a car.

But regardless of what the debt is, as Claire says, “a manageable level of debt is what doesn’t give you stress. If repayments and the end goal of having the loan repaid is overwhelming, that is not a good level of debt.”

4. Make extra repayments

Funnelling extra money into paying debts off early will save you big on interest and free up money to put towards building your wealth.

Start with the highest interest rate debts fist, because they are costing you the most.

For example, the average Australian credit card debt is $4,315. At an average interest rate of between 15 – 20 per cent that’s a guaranteed return of around $700 a year in saved interest… just by paying off your card.

Once your credit card is paid off in full, you can focus efforts into the next highest interest rate loan, for example a car loan.

5. Minimise the interest you pay

In a low interest rate environment, there are always opportunities to minimise the interest you pay, and that money is always better off in your pocket than the bank’s.

Compare the market for the best rate. Don’t be afraid to negotiate with your bank or switch to a better provider if the terms stack up.

And look for product features that can help you save on interest, like mortgage-offset accounts or credit card balance transfers.

As treasurer, if you can borrow within your means, control your spending and minimise bad debts and interest, you are managing debt effectively… certainly better than the mob in Canberra!

Join our newsletter for Kochie’s FREE video on How to Super Charge Your Savings!