Get rid of the car and cards

Money Magazine Australia - - ASK THE EXPERTS - SARAH RIEGELHUTH

Sarah is CEO of Wealth En­hancers and Grow My Team and au­thor of Get Rich Slow. wealth en­hancers. com­mu­nity

First things first. Liana has a great op­por­tu­nity right now to change her fi­nan­cial fu­ture. Hav­ing just started a new job with a good salary, it’s a great time to utilise those ex­tra funds to pay down debt and com­mence a sav­ings plan. Liana is used to liv­ing on $42,000 a year and has re­ally strug­gled, so with an in­crease in salary if she’s able to main­tain her cur­rent life­style it won’t take too long to get ahead.

Ev­ery pay rise is an op­por­tu­nity to fast-track wealth cre­ation, for those of us will­ing to main­tain our cur­rent life­style and not just spend the ex­tra.

As­sum­ing you have a FEE-HELP loan, after your rent you have around $3000 for re­pay­ing debt, sav­ing a lit­tle and cov­er­ing liv­ing ex­penses.

PRE­PARE A BUD­GET

Com­plet­ing a com­pre­hen­sive bud­get to re­ally get a han­dle on where your money’s go­ing is the foun­da­tion for get­ting on top of your sit­u­a­tion. For ev­ery line item in the bud­get it’s im­por­tant to ask your­self how much you value that ex­pense, and whether there’s any way to re­duce it or cut it out (as you have done with re­duc­ing cof­fee pur­chases and cook­ing at home more).

DO YOU NEED A CAR?

I’ve used the Canstar car loan cal­cu­la­tor to es­ti­mate your car loan re­pay­ments at around $750 a month. On top of that there’s fuel (let’s say $100 a month), in­sur­ance, reg­is­tra­tion and main­te­nance. The NRMA es­ti­mates that it costs be­tween $100 and $300 a week to own a ve­hi­cle. If we as­sume $200 a week, that’s $866 a month. For sim­plic­ity’s sake, we’ll as­sume your ve­hi­cle costs around $1500 each month.

The ques­tion I’d be ask­ing is, would a com­bi­na­tion of walk­ing, pub­lic trans­port and (lim­ited use of) Uber end up be­ing less than the $1500 you’re prob­a­bly spend­ing?

You would need to de­ter­mine how much you could sell your car for, and what (if any­thing) would be left on the car loan to re­pay if you were to make this de­ci­sion. It’s too late now but good to know for the fu­ture that bor­row­ing money for a car is a no-go. The mo­ment you drive away with your car it drops in value and from that day for­ward you owe more than the debt on the ve­hi­cle.

This I see as the big­gest way for you to make some changes and re­duce your debt sub­stan­tially so you can start get­ting ahead.

CUT UP CREDIT CARDS

Credit card debt is cost­ing in the realm of $600 a month – a lot. With rent, car and credit card re­pay­ments at this rate, Liana is down to just $1067 to cover all other liv­ing costs. We can see why she’s strug­gling. Ex­pen­sive debt is crip­pling her fi­nan­cially.

It’s crit­i­cal now to get these credit cards paid off as quickly as pos­si­ble.

Be­fore we go any fur­ther, cut up your credit cards. These lit­tle devils are the cause of so much fi­nan­cial stress to be­gin with, so it’s time to just stop us­ing them al­to­gether and com­mit to pay­ing them off.

Next, go through your closet and home and find any­thing you’re no longer us­ing or at­tached to that you can sell on eBay (or a sim­i­lar web­site). What­ever cash you can free up and put straight on your credit cards is go­ing to help im­mensely.

At the same time, ap­ply­ing for a low-in­ter­est or no-in­ter­est bal­ance trans­fer may be another op­tion.

Most im­por­tantly, pay as much as pos­si­ble off the card with the high­est in­ter­est rate first (even if a bal­ance trans­fer is ap­proved, it may not be for the full amount), and just stick to the min­i­mum monthly re­pay­ments on the sec­ond card. As soon as one is paid off, move all re­pay­ments to the other card. As soon as you have paid it off, you can chan­nel that money into sav­ings and in­vest­ments.

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