Do you get a sinking feeling when you see another bill delivered by the postie? Does it feel like as fast as money comes in, it just as quickly seems to disappear? That whatever you do you can’t seem to catch up. You’re not alone. More than 50% of Australians are stressed about their finances with over 85% saying that it affects their well-being. Debt can get out of control fast and impact your life in a variety of ways. If you feel like you’re drowning in debt, help is available.
Support is available
There are many options available to you including applying for financial hardship, government assistance programs, and debt consolidation strategies. We’ll have a look at a couple of ways you can work towards reducing your debt burden. Many hard-working Australians have followed these plans to great success and in some cases slashed years off their home loans.
Calculate your total debt
The first step whichever plan you follow is to sit down and calculate what you may have been putting off for some time, your total amount of debt. Grab a piece of paper and a pen and list every debt you have. List all the home loans, personal loans, credit cards, Zip pay, and Afterpay. Write down who you owe this debt to and the total amount owed. Well done. This can be quite a confronting exercise but you are now on a path of positive change.
Method one – make equity work for you
If you have a home loan and equity in your house(s) you can put this to work. You need to follow the next four steps.
- List all the minimum monthly payments for all your debts and add them together to get your total monthly minimum payment.
- List all your living expenses and how much you spend on them on a monthly basis. Include everything – groceries, incidentals, kid’s school excursion, health insurance, electricity, water, rainy day money so on. Click here for the money smart budgeting tool.
- Work out what you can afford to pay from your salary and income after you have met the costs associated in step 2.
- Now you need to take action. Contact a mortgage broker to help you refinance the home loan and consolidate all debts into 2 home loans. The first home loan is the refinance of your current home loan to get a lower interest rate and to open up the equity for the debt consolidation. The second home loan is just for the debt consolidation with a very short loan term. We don’t want to be paying off last night’s dinner for 30 years.
Now that you know exactly what you can comfortably afford to repay, you make the minimum payment to the first home loan and the remainder to the second home loan. Once the second home loan is paid off you make both payments to the first home loan. You’ll be very surprised how quickly these 2 home loans will disappear.
Peter and Kelly’s story
I recently helped Peter and Kelly eliminate debt using the above method. Their total debt was $540,801 with $1,215 per week in total repayments. Peter and Kelly followed our 4 steps above which saved them $780 per week. Knowing what they could comfortably afford to pay they would have their unsecured debt eliminated within 3 years and 4 months. They would own their home within 12 years and 3 months, saving 15 years and 7 months on the home loan.
Method two – debt snowball method
Another way to eliminate debt is the debt snowball method. This works great for unsecured debt and is really easy to do.
Step 1: List your debts from smallest to largest regardless of the interest rate.
Step 2: Make minimum payments on all debts except the smallest throwing as much money as you can at that one. Once that debt is gone, take its payment and apply it to the next smallest debt while continuing to make minimum payments on the rest.
Step 3: Repeat this method as you plough your way through debt. The more you pay off, the more your freed-up money grows—like a snowball rolling downhill.
Mark’s story
Mark contacted me looking to buy his first house, but he was struggling to pay his unsecured debt let alone save for a deposit for a house. Mark followed the Debt Snowball method and ploughed through all his debt within 2 years and 10 months whilst saving for his first home.
Take control of your debt
Once you start to take control of your debt you will start to feel in control of your life again. Imagine the feeling when you no longer worry about an unexpected payment popping up. If you need help contact Nick from Bestlend. After 20 years of experience in the financial industry, he can support you with refinancing your home loan or help you put into place a loan for your first home. He has helped lots of people around Lake Macquarie improve their financial position and eliminate debt– will you be next?
Contributor:
BestLend | Local Mortgage Broker
Nicolas Koutsos – Owner
Description: Nick is the owner of BestLend, a local Mortgage Broker right here in Lake Macquarie. Nick started his career in finance in early 2000 working for a boutique brokerage firm where he gained exceptional lending knowledge from two seasoned veteran bankers. Nicholas quickly rose through the ranks and moved into senior roles with a prominent local building society where he spent 12 years as a local mobile lender. Nick has assisted clients with buying property, restructure their finances to minimise interest and increase cash flow, finance construction of a new home, guide first-time buyers to homeownership, and wealth creation through investment property acquisition. It’s a big list of qualifications, so you know you’re in good hands.
Phone:0487 784 063
E: nick@bestlend.com.au
