Mortgage Tips, Advice & Articles.

Keep up to date with the latest Australian property market and finance news.

SPECIAL REPORT: Get Rid of Debt and stay Debt-Free for Life!

by Shane McGrath

30 Sep - 2011 - 12:00 AM

Tags: budgeting-saving


Aws4 request&x amz signedheaders=host&x amz signature=6d5252e6db933dc96bb5a6bc54e941d62e919e7315e27dd8cddc978ce517e353

I hate debt! I'll bet you do too. Why wouldn't you? You know that debt brings with it a heavy burden that includes not only financial problems but emotional burdens, psychological and physical stress, family problems and a diminished ability to enjoy life. Getting out of debt feels great! It adds a whole new dimension to life, lifts the weight off of your shoulders, lightens your load, puts a spring in your step...I'm sure you get the idea.

Debt - Let's Get Rid of Your Debts Once and For All!

Our purpose here is to help you get rid of your debts and start building a financially sound life for yourself. Here’s the good news: it’s really not that difficult, in fact once you get started it can and should be a lot of fun. The first thing I’ll emphasize to you is that, yes, you can do it. Others have done it, and so can you. You can get rid of your debts and live a debt-free and prosperous life. You can be out of debt much faster than you’ve dreamed possible and you can get started today. So if you hate being in debt, join with us, and believe me, it’s more fun to get out of debt than it was to get into debt. So as of today we’re starting a new path but let’s look back and see how we got here in the first place.

Here's What We're Going to Do

Together we’re going to look at exactly what debt is, how it came to be and how it has taken over our lives. I’ll offer insights into how the debt business works and how you can easily turn the tables on debt and then turn your back on it and walk away a free person. Living a debt-free lifestyle is not only possible it is something that more and more people are doing. Are you ready to join with us? Then come along and learn the “Getting Rid of Debt Two-Step.” Just follow the steps and you will indeed become debt-free. And the good news is there are only two steps.

Once you have all of the information you'll decide the best way for you to get out of debt. You'll put together an action plan and you'll start your plan. Don't worry at any time you can, if you so desire, abandon you're plan and go back into the never-ending trap of minimum monthly payments and the ever-secure feeling of lifetime debt. Either that or stay on the plan and very shortly have more money to spend, more money to invest and a feeling that everything is possible. Of course, it's your choice.

Let's Get Started

While it’s ultimately up to you to make your way down the path, I’m going to do all that I can to make sure you reach the debt-free finish line. When you reach your goal of being debt-free then you begin a new journey towards building a financial nest-egg that will provide you with a lifetime of peace of mind and financial well-being. So let’s take the first step towards the finish line.

What is Debt?

The concept of debt is not difficult to understand. You need something, you borrow it and you're in debt to the lender. When you give it back you're out of debt. If you borrowed a tool from a neighbour after giving it back you would have an obligation to lend something to your neighbour when he needed something. Of course if you didn't give it back your neighbour would come take it back and may even impose a penalty. Maybe they would refuse to lend things to you in the future and maybe they told others and gave you a bad name, or maybe they imposed some kind of physical punishment.

It's when we throw in the concept of adding interest to what you've borrowed that things get interesting. Now you borrow from a professional lender and pay them back more than you borrowed and if you don't, you pay a penalty in fees, late charges, over-the-limit charges and any other charges that they can come up with to increase what you owe. With interest rates lenders are currently charging, and with the way the charges are calculated, it's not unusual for a borrower to have to pay several times the amount borrowed just in interest. When you understand that many borrowers spend the money on things that have only short-term benefits like dining out or holidays and you can clearly see that they are paying for something long after the benefits are gone. Many people can't even remember what it was that they're still paying for.

How You Got Into Debt

How many times a day do you see a credit card logo on a cash register? Why do they still call them cash registers when they really want you to charge anyway? How much is spent in advertising to get you to spend what you don't have just because you have room left on your credit card? Maybe you thought that sale was just too good to pass up. Maybe you thought that you could handle the payments and maybe you could until...late fees, over-the-limit fees, the increase of your interest rate, you got sick for a week or maybe there was even a real emergency.

Getting into debt is easy, just buy a few things that you can't afford to pay cash for and don't think about how many payments you're going to have to make before it's paid off completely. Getting into debt is fun; just go out to dinner and a show or away for a few days to make yourself feel better about the fact that you don't have the money to go out to dinner and a show or to get away for a few days. Getting into debt can impress people. Don't drive around in something that you can’t afford to pay for, figure out how much you can squeeze out of your monthly budget, and if you don't have a budget even better just guess, then tell a car salesperson that you'd like to make 48 payments and see what you'll be driving around town in. The best part is you'll guarantee you'll be driving it to work for the next 1,460 days just to make the payments. Now that's impressive!

Take the "How Did I get Into Debt Quiz". Pull out one of your credit cards and determine how much you owe on it. Now, quickly, what did you buy for all that money? I'll bet you don't know because you bought stuff. Stuff you may not even have anymore let alone still use or be able to identify. Now ask why do you use it at all? Be honest. How does "I want stuff I can't afford to pay cash for" sound?

Now that your eyes are open to the horror of "easy monthly payments" I've got some good news. Getting out of debt is going to be even more fun than getting into debt was. I’ve done both and becoming debt-free feels great. So if you're ready let's get started...but first one more thing to discuss, Good Debt/Bad Debt.

Good Debt/Bad Debt

Much like cholesterol, where there is good and bad cholesterol, debt comes in two versions. It can be okay to take on debt in a reasoned way for a good purpose. In fact many people become wealthy by borrowing money to invest in business opportunities or property. They call it using other peoples’ money. But my focus here is on how individuals spend their money on themselves. It’s how you spend your money.

There can be some very good reasons to take on debt. Financing education, for example, can be an admirable thing. If you go to school to increase your income potential, taking out a loan would be a good thing. If you take out a $2,000 loan and you learn a skill that let’s you earn an extra $5,000 a year, you’d be crazy not to take the loan. If you take out a student loan because you don’t know what you want to do with your life and you don’t want to get a job, well, that’s not a good idea.

For most people taking out a mortgage is the only way they'll be able to purchase a home. This could be considered good debt. Because of the way mortgage payments are structured with the first few years being heavily weighted towards paying interest and mere pittance going towards principle, it’s a good idea to pay off even this good debt as soon as possible. Many wise financial minds teach that before investing in something that will give you thirty years of monthly payments it’s better to invest in income producing assets first, something like rental property.

Well, what about if there’s an emergency? Maybe the plumbing broke, or you have a medical emergency. Well let’s not be stupid about this, if its real emergency and the only way to pay for it is by taking on debt, then take it on.

Now Let's Get Rid of Your Debt!

Now that you've got a better idea of what debt is, how it been marketed and advertised in the form of easy payments and how you've bought your way into a lifetime of payments, it's time to get out of debt! Get ready because you're going to learn how to do the Getting Rid of Debt Two-Step.

The Getting Rid of Debt Two-Step

Step 1 - Stop Creating New Debt!

That’s it. Don’t create any new debt. This should be very simple. Cut up your credit cards. Or at the very least quit carrying them around with you. If you must, during the start of this process, keep one in a box in the back of the closet, or put it in a small container and freeze it. If you really, really have to use one it will be there. There will come a time when you just won’t need to use one ever.

When you stop creating new debt almost anything you do to pay off your debt will work. If you keep creating new debt almost nothing other than a sudden windfall of riches will work. So don’t even bother with step two unless you're serious about step one.

If you’re not sure you can quit using credit cards then we’ll try our best to scare the debt out of you with the true cost of debt. This includes:

 

The Financial Cost of Debt

Have you ever wondered what the real price of "no money down" or "low monthly payments" really is?

Recently some credit card companies have started charging up to 29.9% interest on unpaid balances.

Imagine that you are 23 years old and want to treat yourself to a nice holiday. You go away and have a nice time, with travel, hotel, food and shopping and you spend a total of $3,000. You put it on your 29.9% credit card because you could afford the monthly payment and you had room on your card to do it. So now the question is, when will your debt be paid off and how much will it really cost?

You'll be 65 years old and have paid over $13,000 in interest alone before your holiday debt had been paid off. Yes, that is basically your entire adult working life. Make one financial mistake and wind up being a slave to your debt for 42 years.

If you were lucky enough to have "good credit" and get an 18.9% interest card you'll have the debt paid off in 16 years and 7 months. Your credit card debt will be nearly old enough to drive before you get it paid off.

This is the reality of modern debt. You get sucked into making payments and then they've got you and they've got you good. Talk about addictive behaviour - this is it. You’ve got to admit there is a problem before you're willing to look at a solution. So hold on we're going to get real about your debts.

The Emotional Cost of Debt

Anxiety - Anger - Depression - Shame

As bad as the financial cost of debt is, it is not the biggest price to pay for a life of saying "charge it". The emotional baggage that debt bestows is much worse. Do you fear the day your credit card bills arrive? What would it feel like to discuss your credit card balance with an acquaintance? You'd probably lie or change the subject wouldn't you? Do you walk around like a zombie knowing that it will take you years to pay off your debt or worse, that you have no plan or no idea how you will ever get it taken care of? Have you stopped having fun or do you secretly agonize with regret after you do? Do you lie awake at night worrying what to do about your debt? Is it 2am right now?

Okay, you're getting the idea. Being in debt is miserable. It robs you of the joy of life and it cripples your sense of enjoyment and wonder. Point your finger at your credit cards, you choose the finger, and tell them "I'm never going to let you ruin my life again". Get out the scissors and cut them up. Cut them to pieces! Be careful, don't cut yourself, but you can put an end to your debt creation right now - so do it! You'll feel much better when they're gone.

The Path To Freedom

Are you ready to kick up your heals and start dancing? Then let’s start the “Getting Rid of Debt Two-Step”. It’s easy! It’s fun! When the dance is over you’ll be debt-free and ready to move on to the “Wealth Building Rumba”. Seriously, this is going to be fun. We’ll turn that mountain of debt into a mole hill and then we’ll stomp all over it, flatten it out and you’ll have a great foundation on which to build a palace of wealth. So, here you go but before you do, say it loud, say it proud,

“No new debt!”
“No new debt!”
“No new debt!”

The Getting Rid of Debt Two-Step
Step Two- Part One

Congratulations! You’re moving onto the final step. OK so there’s only two steps but this is the final one.

Before you go down any path you’ve got to know where you are and what baggage you are taking with you on this trip. So sharpen your pencil, and an eraser or two and let’s do some figuring...

Download a copy of our Budget Planner in excel.

Budget planner 

Open your Worksheet and fill out the monthly budget sheet.

The first step is knowing where exactly do you spend your money?

Be honest with yourself about yourself.

Are you serious about getting rid of your debt?

If you're willing to be honest with yourself about yourself, your money, and your debts, you've got a great chance to take charge (pardon the expression) of your life. You can be one of the few people who have taken control of their financial life and made a personal commitment to get rid of their debt, to stay debt free and to create an amazing financial life for themselves.

You can do it! And the time to start is now. Once you start down this path you will never turn back. Take a deep breath and pack up your debts because you're ready for the trip of a lifetime.

The Getting Rid of Debt Two-Step 
Step Two - Part two

The good news is that everyone can "do-it-yourself." But it’s up to you; if you’re going to wimp out and go off the path you’d better think twice. You can do it yourself, but you’d better have the fortitude to make it through. If you’re unsure that you can do this, you could always change your name and run off to a desert island - not a good idea if you're planning to charge the trip.

Part two consists of, well simply put, just paying off your bills. There is some very good news. There’s a system that is easy to learn and easy to use and it makes your debts seem to just disappear.

The Good Parts:

You’re in control. If a real emergency or an outstanding opportunity comes your way you can adjust without special notice or prior arrangements.

Hidden Benefits:

You get the credit from yourself as well as others for getting yourself out of debt. It’s an accomplishment most people unfortunately will, well, never accomplish.

The Bad Parts:

You’re in control. If you can’t control yourself when you see the "too good to be true" sale you’d better find another path.

Hidden Traps:

Impulse Spending - Procrastination - No "Customer Service Department".

Unless you are serious about getting out of debt now, meaning not creating any more debt and following a spending plan, you may as well forget it, take your handcuffs into work and cuff yourself to your desk because you'll never get out of debt. Oh, your boss will love you and may even give you a raise but it won't matter because you'll just spend it all and more because now you can afford higher monthly payments. Okay, sorry, I got carried away, but this is important. During the course of becoming debt-free it is natural and should be expected that at some point a little impulse spending and procrastination might occur. First of all, a good spending plan should include some money for fun and impulse spending. Yes, planned spontaneity. And if after a few months you feel as though you deserve a vacation and you will get back on track next month, then by all means, enjoy yourself. If you can develop your own non-judgmental support group whom you can confess your mistakes and share your victories with, please do, it will help.

So if you’re ready let’s go.

The simple solution.

Grab a pen and paper!

  1. Make a list of the debts that you owe and the minimum monthly payments.
  2. Congratulate yourself because most people have never gotten this far.
  3. Prioritise them by either:
  4. Amount due
  5. Interest rate
  6. Any other method you choose (Normally prioritise by highest non tax-deductible interest rate first)

4. Pay the minimum amount due on all your debts but the first one and on that one pay as much as you possibly can.

5. When the first debt is paid off add the amount you were paying on it to the next debt.

6. Continue until you're debt-free.

That's it... but don't be fooled in its simplicity the real power is in making sure you keep doing it until your debt free.


Back To All Articles

Don't Miss Out


Subscribe for the latest rates, tips & advice a must-read.

Get Pre-qualified


We'll help you estimate how much you may be able to borrow from over 30 lenders.

Get Pre-qualified