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It's Time to Get Real About Debt Part 1
Last year saw falls in the prices of shares not seen for twenty years. The cost of everyday basics rose significantly. Bread, cheese, and groceries in general, fresh fruit and vegetables, and petrol all rose in price, hurting the hip pocket of rich and poor alike.
If you carry any debt at all, no matter how much or what type, it's time to face facts: debt is bad news and you need to work on becoming debt free as fast as you possibly can. So do you know how much debt you have? Most people don't know and the only way to really become debt free is to know exactly how much debt you are carrying and what the interest rate is for each and every debt.
Use the Payment Push planning sheet to list every debt you have. Fill in the first four columns for now, they are the ones you need to see how much debt you are carrying.
Examples of debt are:
Once you know all the debt you have you can start to pay it off. If you've filled in the Payment Push planning sheet you'll be able to see at a glance the total amount you owe and just how much it's costing you each month. Don't let this depress you, you are taking charge and you are going to get rid of it. Think how fast your emergency fund and your savings accounts will grow when you can put your debt payments into them.
If your monthly debt repayments are more than your monthly income you have a decision to make. You'll need to decide what you are going to pay and what debtors you are going to have to ask to either reduce the payments or put the re-payments on hold.
Work out what are necessities and what are able to be put on the back burner. There are some things you need to keep paying no matter what, these are the necessities.
Your mortgage - even if it is jus the minimum payment for the time being, keep paying it. You need a roof over your head and at least this way you will eventually own a valuable asset. Lose the house and you'll be stuck paying rent, with no valuable asset at the end.
Utilities - gas, electricity, water and phone are essentials to modern life. You need to keep paying these. If you are behind on any of these bills contact the company and ask to be put on a payment plan. Set up an automatic payment each pay period to get it paid off. In most cases they are willing to help you out if you are up front with them, they want their money just as much as you want your power. While you're doing this work on cutting the overall cost each month. You know the drill, turn lights off, put a jumper on before you put the heater on, fix dripping taps, limit phone calls etc
Food - we all need to eat to live. Cut back on takeaway, cook from scratch, if you don't have the money to pay your debts you don't have the money to each fillet steak so look for cheaper alternatives. Use the money you are saving on groceries to pay off your debt.
Transport - if you have a car loan and you really need that car then you need to keep paying for it. If you don't really need it - you may have another vehicle you can use, or live on a really great public transport grid - then think seriously about whether you can afford it. If you can't, look into selling it. You'll need to be able to get enough for it to at least clear the debt on it.
All other debts are non-essentials. This doesn't mean you don't have to pay them, you do. But they don't affect the necessities for living and so if you can't pay all your debts then these are the ones where you contact the creditor and ask if you can put them on hold, reduce the payments or work out another way of paying them off. These include credit cards, store cards, those dreaded interest free loans (think carefully about this one as they can end up costing you big money), school fees etc.
When you have done this you are ready to work out a Payment Push plan to get rid of this debt.
Go over the Payment Push sheet and work out which debts are necessities and which are back burner debts. Print off another sheet and list them in their categories, in order from 1 - 10 (or however many there are) with No. 1 being the debt with the shortest time left on it.
Calculate the minimum payment for this month. This is the minimum payment you will be making every month on these debts, regardless of what the statement may say. Remember, the aim is to clear debt so you are going to be making this minimum payment until the first debt clears (this should be the debt with the shortest time left on it).
Once you've cleared the first debt you are going to take the minimum payment for that debt and add it to the minimum payment on the debt with the next shortest time left. This will increase the minimum payment on this debt significantly and reduce the time left before it is paid out. Keep paying the original minimum payment on all the other debts.
When debt no. 2 is cleared (well done by the way), then take that payment amount and apply it to debt no. 3. Keep paying the original minimum payment on your other debts. Keep doing this as each debt clears right through your list until you are debt free.
If you carry any debt at all, no matter how much or what type, it's time to face facts: debt is bad news and you need to work on becoming debt free as fast as you possibly can. So do you know how much debt you have? Most people don't know and the only way to really become debt free is to know exactly how much debt you are carrying and what the interest rate is for each and every debt.
Use the Payment Push planning sheet to list every debt you have. Fill in the first four columns for now, they are the ones you need to see how much debt you are carrying.
Examples of debt are:
- Mortgage - include any lines of credit etc you may have
- Overdraft/s - if you have one
- Car Loan - list them all, you may have more than one
- Personal Loan
- Interest Free Loans - furniture, white goods, computers etc
- Credit Cards - list them all, include store cards
- HECS
Once you know all the debt you have you can start to pay it off. If you've filled in the Payment Push planning sheet you'll be able to see at a glance the total amount you owe and just how much it's costing you each month. Don't let this depress you, you are taking charge and you are going to get rid of it. Think how fast your emergency fund and your savings accounts will grow when you can put your debt payments into them.
If your monthly debt repayments are more than your monthly income you have a decision to make. You'll need to decide what you are going to pay and what debtors you are going to have to ask to either reduce the payments or put the re-payments on hold.
Work out what are necessities and what are able to be put on the back burner. There are some things you need to keep paying no matter what, these are the necessities.
Your mortgage - even if it is jus the minimum payment for the time being, keep paying it. You need a roof over your head and at least this way you will eventually own a valuable asset. Lose the house and you'll be stuck paying rent, with no valuable asset at the end.
Utilities - gas, electricity, water and phone are essentials to modern life. You need to keep paying these. If you are behind on any of these bills contact the company and ask to be put on a payment plan. Set up an automatic payment each pay period to get it paid off. In most cases they are willing to help you out if you are up front with them, they want their money just as much as you want your power. While you're doing this work on cutting the overall cost each month. You know the drill, turn lights off, put a jumper on before you put the heater on, fix dripping taps, limit phone calls etc
Food - we all need to eat to live. Cut back on takeaway, cook from scratch, if you don't have the money to pay your debts you don't have the money to each fillet steak so look for cheaper alternatives. Use the money you are saving on groceries to pay off your debt.
Transport - if you have a car loan and you really need that car then you need to keep paying for it. If you don't really need it - you may have another vehicle you can use, or live on a really great public transport grid - then think seriously about whether you can afford it. If you can't, look into selling it. You'll need to be able to get enough for it to at least clear the debt on it.
All other debts are non-essentials. This doesn't mean you don't have to pay them, you do. But they don't affect the necessities for living and so if you can't pay all your debts then these are the ones where you contact the creditor and ask if you can put them on hold, reduce the payments or work out another way of paying them off. These include credit cards, store cards, those dreaded interest free loans (think carefully about this one as they can end up costing you big money), school fees etc.
When you have done this you are ready to work out a Payment Push plan to get rid of this debt.
Go over the Payment Push sheet and work out which debts are necessities and which are back burner debts. Print off another sheet and list them in their categories, in order from 1 - 10 (or however many there are) with No. 1 being the debt with the shortest time left on it.
Calculate the minimum payment for this month. This is the minimum payment you will be making every month on these debts, regardless of what the statement may say. Remember, the aim is to clear debt so you are going to be making this minimum payment until the first debt clears (this should be the debt with the shortest time left on it).
Once you've cleared the first debt you are going to take the minimum payment for that debt and add it to the minimum payment on the debt with the next shortest time left. This will increase the minimum payment on this debt significantly and reduce the time left before it is paid out. Keep paying the original minimum payment on all the other debts.
When debt no. 2 is cleared (well done by the way), then take that payment amount and apply it to debt no. 3. Keep paying the original minimum payment on your other debts. Keep doing this as each debt clears right through your list until you are debt free.