Last week I confessed my debts – at a grand total of around $6000 (and that doesn’t include my student loan….). However confessions are empty without redemption, so, after a weekend of spending (whoops) I’m on a diet – a money diet – to get out of debt quick.
My end goal is to be debt free by the New Year which isn’t actually that far away when you consider we’re into June already. So this week I’ve made an action plan and discovered a get out of debt quick plan involving three things. Firstly a budget. secondly, a debt repayment system and thirdly, and quite possibly most importantly, the ability to stick to the previous two!
This is what I’ve done:
1. Finding Help on the Web
I decided to get smart and get some good advice and guidance so I hit the web for some resources.
First stop Sorted . This site is an independent money guide run by the Retirement Commission. It’s a great for professional, reliable advice on all things money related. And they had just the link for me “Get out of debt fast” - Yes please!
It has a fantastic calculator that works how long it will take to pay off your debts and how much you pay in interest. I took the test and here are the results:
|Type of Debt||Current Montly Repayments||Interest Rate||Time to Pay off Debt||Total Extra Paid in Interest|
|Credit Card 1||$50||22.2%||3 years, 6 months||$622|
|Credit Card 2||$60||6.5%||2 years, 11 months||$186|
|Store Card||$50||23.7%||3 years 8 months||$695|
* (Note, I didn’t include my overdraft as it is currently interest free with my National Bank Graduate Account.)
As you can see, at this stage it is a slow ride out of debt with a lot of extra interest for nothing. In fact, I’d be paying $7,500 on the $6000 debt I have today. I think most people know that high interest debt should be paid off as soon as possible, but it isn’t until you actually work out the sums that it spurs you into action!
Pay it off ASAP! – that’s my plan!
2. The Budget
If I’m to reach my goal of being debt free before the New Year it’s time to sort out a budget.
After all my bills (minus debt repayment bills), I have about $200 left over which does make me wonder, where has this money been going?
What I’ve come to realise is that it is SO easy it is to fritter money away – a few coffees, lunches out, magazines, Friday night drinks and poof – there goes a chunk of your hard earned cash with nothing really to show for it. A classic example is that latte you buy on the way to work every day. At say $3.80 each, that’s almost $20 a week without even thinking about it.
To be money savvy, it pays to allocate yourself a portion of spending money each week for spending on whatever you wish (this is sometimes called sanity money which is a good way to look at it!) and then put the rest into savings or debt repayment.
I’ve allocated myself $40 a week which leaves $160 for debt repayment.
The next thing I had to figure out was how to tackle this debt – where on earth do I start?! My research led me to discover that a debt repayment system is a good start.
3.The Debt Repayment System
Prioritising what debt to pay first is the key for your debt repayment system. I’ve been reading “the Money Diet” by Bruce Wallace. He suggests writing a list of your debts and their interest rates. Divide the total owed on each card by the interest rate.
Rank the resulting number. The card with the lowest number is the one you should pay off first, as it will save you the most money. Pay the minimum on the rest.
So here it goes: Debt repayment plan…
Credit Card 1: Total balance: $1400 / 22.2% interest= 63.7 Result - Pay second
Credit Card 2:
Total balance: $1900 / 6.5% interest = 292.3
Result – Pay third
Total balance: $1432 / 23.7% interest = 60.42
– Pay first
Overdraft: Total balance: $1300 / 0% interest = 1300
– Pay last
With $160 a week to put towards my debt each fortnight, by paying the minimum on the other debts I can make repayments of $550 every month on my store card and have it paid off in under three months.
I never thought doing a budget would make me excited, but it has! It is such a relief to see an end to bad habits and bad debt and an end date makes me see the light at the end of this tunnel!
My advice for the week - do your own budget and debt repayment plan – you’ll feel better for it!
Mary Holm: Get Rich Slow: How to Grow Your Wealth the Safe and Savvy Way
Martin Hawes: Twenty Good Summers: Work Less, Live More and Make the Most of Your Money
Liz Koh: Your Money Personality: Unlock the Secret to a Rich and Happy Life
Martin Hawes and Joan Baker: : Coach Yourself to Wealth: Live the Life You Want
Anton Nadilo and Andrew Lendnal: Budget Wise, Dollar Rich: The New Zealand Guide
Compare Credit Cards - Independent interest rate and fees comparisons for New Zealand banks.
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