Debt can creep up on you, so what do you do when it hits $50,000?
Debt always starts out small, and while for many people it doesn't grow into a problem, for others it does. This page discusses expert-approved strategies at paying down a large sum of debt, Specifically, $50,000.
Joe and Lillian are in an enviable position as homeowners. They purchased a house 12 years ago for $287,000 and currently have a variable rate loan with ANZ. They have $130,000 in equity and $157,000 in principal remaining. Their net household income is $64,168.
While they have assets, they also have considerable debts. At the moment they have a $20,000 debt on their HSBC Platinum credit card and a $30,000 car loan debt with Bankwest.
Visit Robert Dawson's website Insight Investment & Retirement Strategies: iirs.com.au
We're a society that's driven by wants, not needs. It's a want society. You see all the advertising and promotion; it's all about what you want, not what you need. You don't really need a shirt with a $50 logo on it; you're quite happy with a $25 shirt. A lot of these ads tell you that you should buy these things because you're worth it, not if you can afford it. That's how people get into debt.
I think the best way to manage debt is to write down all the expenses you have in a typical week, make allowances for some of the quarterly expenses that you have and try to work out what things you don't really need to do. It might mean that one weekend a month, you need to have a poverty weekend where you don't go out and spend. That money that you save on that weekend is what you use to pay off your debt.
If you find that at the end of the month you're struggling to pay whatever bills that you having, if you find that your credit card never seems to go backwards because you're not managing it properly, then they're signs that you're struggling. What you should be doing is being far more disciplined.
For any lender or provider to report someone for bad credit, there's a process that they have to go through. If you've just missed one payment on a telephone bill or a credit card payment, that is not cause for being reported for bad credit. They will obviously remind you for numerous times over numerous months and at the end of 3 or 6 months and you haven't responded, they can then go to the credit file and report you as nonpayment. Some companies operate on a 180-day payment process and if it's not cleared up within that time, they feel it's justified to do something. Always contact the people that are tracing you and always make an effort to pay.
All loan applications can be affected by bad credit. If it's a personal loan or credit card application, that's unsecured debt that you're applying for. If you have other loan defaults from previous credit cards or mobile telephone bills, then they will count very heavily towards that application. With home loans, they may still affect your application, but they will want a higher deposit for the home loan to compensate for the risk. That's secured debt; that's a different matter.
That's very important. If they've already got a default and they don't have good credit, first thing they need to do is to access their credit reference and see what the credit authorities are saying about them. They are allowed to do that and that is required under law. If there's anything that's wrong, they should challenge it and give a detailed explanation as to why that piece of information is wrong. If there are any payments that should be made that are outstanding, or there's debt that they have actually paid off, even if it was late, then they should bring that to
their attention, as well. Don't leave debt unpaid.
First of all, it depends on what kind of credit card they're using. I'd recommend that they move to a lower rate card. Secondly, they need to do some budgeting. Thirdly, we would need to direct debit payments from their bank account to the credit card, preferably the day after they're paid, then they have to live on what's remainder. They're part of the initial steps. We may also then suggest a few things that they need to tailor their life around, like having a weekend with no spending once a month in order to get rid of the debt.
Yes. I think people should be very conscious about what product they've got and what other options there are in the market. If they start off with a low interest rate credit card rather than a high interest rate credit card, then the chances are that they won't need to reconsider what product they're using. If they've started off on a higher interest rate credit card, they need to be conscious of the fact of what it's costing them in the long-term.
Lesson learnt: Getting into debt is easier than getting out
Where to next? Explore some of our other guides about debt and financial management.
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Rates last updated August 17th, 2017.
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