Excellent question! All us parents have wondered at one time…
Debt free, it sounds too good to be true doesn’t it? The good news is, it’s entirely possible and you can get there sooner than you think. It just takes a few tweaks.
Here are our top tips for getting out of debt faster:
1. Move the debt
Interest rates on debt can skyrocket past 25% per annum, especially if you miss a payment (go ahead and check the fine print, it will be in there). This is just insane; it makes it especially hard to pay off debt if large amounts of interest are being added each month.
Do yourself a favour and move the debt, ask around, talk to few banks, then ask a few lenders who aren’t banks (think credit union, co-operative bank, NBS) and see who will give you the best deal.
2. Debt Consolidation
If you find your debt is spread across a few different avenues (Afterpay, credit cards, financed items) it may be best to consolidate your debt into one easy payment. Make sure you look for a debt consolidation deal where you can pay off big chunks at a time and won’t be penalised for it.
Once you have consolidated your debt, cut up your credit card, remove the card shut down your Afterpay account and stop purchasing items you cannot afford outright.
That leads nicely into our next point.
3. Review your spending
Being aware of what your spending habits are has a positive effect on your finances. Just realising that you are spending $3000 per year on takeaway food can really open your eyes. Complete this exercise, take 15 minutes tonight to go through your bank statement from this month (and your credit card statement if you are using one) and categorise your spending. It will absolutely shock you how much money is being wasted each month.
Once your debt is paid off, put the same repayment amount into a savings account. Your home deposit will be accrued in no time.
4. Increase mortgage repayments
It seems simple, increasing your mortgage repayments will mean you pay off your mortgage faster. But how much faster? How much extra are we talking?Imagine your mortgage is $500,000 on a 30 year term.
Adding $50 extra per week would save you $102,465* in interest over the term of the loan. (*Based on an interest rate of 5.79%)
You would also be mortgage free five years faster.
Are you stuck in a bit of a financial rut? Give me a call, or drop me an email. I would be happy to discuss some ideas with you.