How to get out of debt once and for all!

Breaking the debt cycle
Financial Health for Teachers
How to get out of debt once and for all!
If you’re in debt you may feel a little silly. You may even
feel like you’re never going to be able to get out of it,
especially if you’ve tried and failed before.
Well, what if I told you that I’ve worked with literally
thousands of people over the past ten years – people
just like you – who were not only able to become debtfree, but actually enjoyed the process?
Many of the people who have become debt-free with
my method have gone on to become some of the most
successful money managers I know, literally propelling
themselves into investments, houses and savings.
One of the things I’m known for is helping get people
out of debt really quickly. I don’t have a magic wand,
and I certainly don’t have some complicated plan you
probably wouldn’t follow anyway.
The Barefoot Investor debt elimination plan is
alarmingly simple. Other financial types may have
complicated formulas and week–by–week plans on
getting your debts under control. Bugger that.
You got yourself in debt, now it’s time to get yourself
out. I call it the Debt Domino, and I’ve personally helped
thousands of people get out of debt using the domino
method. Best of all, it will only take you 60 minutes to
implement.
So do you want to sit on the couch and watch Big
Brother tonight? Or do you want to take control of your
finances once and for all? It’s your choice.
Ready? Let’s go.
How to domino your debts
To domino your debts, you need to line all your debts
up in a row.
Here’s how:
First, grab a piece of paper and write down all your
debts – credit cards, car loans, parking fines, even
money you owe to friends – everything.
Second, arrange your list of debts from smallest to
largest (making sure you’re meeting the minimum
repayments on each). That’s smallest to largest debt, not
interest rate (forget about the interest rates for now).
Now, here’s the trick: attack your smallest debt (say your
credit card) by bumping up the repayments, so you can
knock it over like a domino as quickly as possible. Focus
your attention on knocking your smallest debt over
completely.
The Barefoot Investor
debt elimination plan is
alarmingly simple.
When it’s paid in full, throw your card into a blender (or
have a bill-burning ceremony).
Celebrating is really, really important. You need to give
yourself a pat on the back – a psychological reward for
having a small win.
Then, the next day, take your momentum and move on
to knocking over your next debt domino.
Keep going till you’ve knocked down all your dominoes.
October 2012
www.teaching.moneysmart.gov.au
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Breaking the debt cycle
Starting with a small accomplishment – like paying off
your smallest debt then moving onto larger and larger
ones - is by far the fastest and most successful method
I’ve seen for people to get themselves out of debt.
The simple act of setting up a goal and knocking it
down will change not only the way you spend but the
way you live. Trust me on this. By directing all your cash
towards getting out of debt, by making it as real and as
painful as possible, until every last cent has been repaid,
you’ll develop true character – and the behaviour
required to become financially free.
What About Consolidating All
My Debts?
Essentially this is taking out a loan to cover all
your debts and then paying off the loan with
structured payments from your bank.
The advantage is that it may well decrease the
average amount of interest that you are being
charged, but over the years I’ve grown wary of
debt consolidation. Here’s why:
Early on in my career I had a bloke in his twenties
come to see me who had $15,000 on various
credit cards. He’d gone to see his bank, and they
suggested he consolidate his sky-high credit
cards into a low-interest personal loan with set
repayments.
He wanted the magic wand approach, and
he certainly got some fairy dust. Last year he
emailed me wanting advice on bankruptcy. He
was now $47,000 in the hole, and simply couldn’t
repay it.
He’d changed the figures, but hadn’t changed his
behaviour.
Did you know?
The Credit Card Debt Clock from MoneySmart shows:
XX
Australian’s have racked up $38 billion on their
credit cards. That’s an average $4,900 per card
holder.
XX
The average card holder is paying around $800 in
interest per year if their interest rate is between 15
to 20%.
XX
If you have $4,700 of credit card debt and only
make the minimum repayments, it will take you 49
years to pay it off, and cost you around $14,600 in
interest.
XX
But if you pay off $250 each month you’d pay
off your debt in two years, and save $13,700 in
interest.
People who have lost large amounts of debt
and have kept it off have one thing in common
– they changed their attitude, got angry enough
with their situation, and decided things had to
change.
Your debts are really just the symptom of your
real problem – the fact you continually spend
money you don’t have.
www.teaching.moneysmart.gov.au
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Breaking the debt cycle
Principal Update
Richard Powell, Amaroo School, ACT
The challenges faced in implementing the framework
include the timeframe, especially given we are well
into 2012 and learning programs for the year are
already in place. So the challenge of fitting something
extra into a busy schedule is one we have had to
meet. Our focus is therefore on showing teachers
where the framework fits into what they already have
planned.
Another challenge is the time required to deliver the
Professional Learning Workshops. We have made the
decision to condense the sessions whilst ensuring all
the essential elements are included.
Richard Powell (left) with teachers Rebecca Turner and Grant Smith
“Amaroo School caters for Preschool to Year 10 in the
newer northern urban area of the ACT. There are 1,605
students currently from the feeder areas around the
school. There are about 130 teachers in the school and
about 25 administrative staff.
Amaroo School made the decision to become an
ASIC MoneySmart School because of the enormous
range of skills and knowledge the program offers to
students. In particular the change of our finances to
more invisible forms rather than cash is a real issue
that faces our students and has not been previously
addressed. Students need to understand such things
as how credit cards work, contractual implications
and how the financial decisions they make affect their
lives.
To date we have been planning the implementation
phase of the teaching package. The links in the
program to the Australian Curriculum in English
and mathematics are very useful. The resources for
teachers are also extremely useful and will greatly
enhance the delivery of the program. Teachers at
Amaroo School have found it is not only going to
expand the financial literacy of students but teachers
as well. Early parent feedback is also similar and they
have expressed support for the units of work.
The Management Team is looking forward to
expanding the resources of the school and further
assessing the interest levels of teachers and students.
When teachers realise the excellent range of skills and
understandings ASIC MoneySmart offers, they will
be keen to integrate the resources into their existing
programs. We plan to provide the Professional
Learning for staff and complete our trial by week eight
of term four 2012.
The links in the program to the
Australian Curriculum in English
and mathematics are very useful.
As we are currently in the early stages of
implementing the framework, there has been minimal
impact to date. However, we have made the decision
to include Financial Literacy as an integral part of our
Parent Literacy and Numeracy Evening in 2013. We
will also be focusing on ASIC MoneySmart elements
during our Literacy and Numeracy Week in 2013.
Finally, we will have the MoneySmart Framework
taught across the primary area of our school in 2013.
It is particularly pleasing to note that in trials to date
year five students have demonstrated high levels of
interest and motivation when working on authentic
learning tasks. Students thrive on financial challenges
that require them to create budgets and financial
plans for modern life experiences.”
Richard Powell, Principal
www.teaching.moneysmart.gov.au
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60, 60, 6 Challenge
60 Second Challenge The first step to credit health
As your newly appointed debt doctor, the first thing
I’d like to do is have you take a 60-second debt health
check. Check your credit rating as the first step to
owning your credit and dealing with debt.
Now, have you ever wondered if Big Brother is watching
you? He sure is, but it’s not a tacky television show. Big
Brother is Veda Advantage, a private company that
tracks most (if not all) of your credit movements, and
keeps a credit file on you.
Spooky but true.
And banks and other businesses use your credit file to
verify your creditworthiness. If a potential lender sees
something on your file that makes them nervous, the
chances of you getting credit reduces accordingly. Think
credit cards, car loans, store loans (gasp) and home
loans.
Now I have your attention, I’ll point out that in order for
an institution to record this on your file it doesn’t have
to be something major. But in this crazy technological
world we live in, mistakes do happen – and when it’s
something as serious as your credit rating, you want to
make sure everything’s kosher. So check it out.
Most people don’t even know they can access their
credit file – and that it’s FREE. Go to www.mycreditfile.
com.au and look under ‘Personal’. You can pay for your
file if you want it in a hurry, but if you’re willing to wait a
few weeks it doesn’t cost a cent (go to the ‘Products and
Pricing’ tab and click ‘Free – Find Out More’).
If you do have a bad credit rating due to unpaid debt,
take control. See a financial counsellor for help (visit
MoneySmart for contacts).
60 Minute Challenge Lower your credit card interest
rate (and have the annual fee waived too)
Over the years I’ve had hundreds of people use this
deceptively simple strategy to get a better deal on their
credit cards. Like any business, the banks don’t like
losing customers without a fight. You can use this
to your advantage.
So, here are three simple steps that can potentially save
big bucks on your credit card – all in under an hour.
First, find out what the best credit card rates are. Have
a hunt on the internet to see what’s on offer. There are
some comparison sites which list cards from a range
of institutions. If you use one of these sites always
doublecheck the information with the institution.
Second, find a card with a low rate and no annual fee or
balance transfer fee. Then write down the name of the
card and the institution offering it.
Third, ring your bank and tell them you’re switching if
they don’t match the deal: remember it costs your bank
more to attract a new customer than it does to keep you
happy.
The real lesson is to be proactive – and always
remember Barefoot Rule 132: “If you don’t ask, you don’t
get.”
6 Day Challenge The Debt Domino Plan
Most people approach the goal of being debt free with
a mixture of fear, angst and depression. One way to
achieve this goal is through the Debt Domino plan. I’ve
had hundreds of people tell me that ‘dominoing’ their
debts was the most financially uplifting experience of
their life.
So how do you domino your debts?
1. Grab a piece of paper (or your computer) and list
all your personal debts except the mortgage and
HECS-HELP. Arrange them from smallest to largest
down the page.
2. Go through the list and write down the minimum
repayment required for each one. Pay these like
clockwork – or else you’ll get a bad mark on your
credit file.
3. On top of keeping up the minimum payments, throw
everything you can into paying off the smallest
debt domino. Knock it over as quickly as possible
– take a few extra shifts at work, sell stuff on eBay,
whatever. Keep a running tally on the fridge or
somewhere else so you’ll see it every day.
4. When you’ve knocked down the smallest domino,
celebrate! Then move to the next-smallest one,
then the next.
5. Celebrate big time when you knock down that last
domino.
WARNING: Following through on this plan will cause
you to build up momentum that will make you
unstoppable.
www.teaching.moneysmart.gov.au
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Breaking the debt cycle
Case Study
‘Breaking the debt cycle’
Donna Maslan, Teacher, Candlebark School, Victoria
“I felt like my debt was suffocating me.”
Thirty-two-year-old Victorian teacher Donna Maslan
can tell you about the soul-crushing experience of
overwhelming debt. Trapped in a cycle of frivolous
spending as the result of an unhappy relationship,
Donna found herself struggling to manage $30,000
worth of credit card debt.
Donna isn’t alone in her experience, with many of us
turning to ‘retail therapy’ as a quick comfort fix.
Donna describes her relationship with money as a
complicated one. “When I was at school the only thing
I learnt about money was how to fill in a cheque – so
spending money!”
At the height of Donna’s spending spree, she owned
three credit cards and would often use one to pay off
the other and barely making the minimum payments . It
was at this point two years ago that Donna realised she
needed to take control of her finances in order to feel
happier and more secure in her life.
“Thirty thousand dollars worth of debt is just so
suffocating and it feels like it’s sitting over you at all
times, it’s really awful.”
Mustering up all of her willpower and determination,
Donna set herself a budget, and cut up her credit cards.
Even going so far as to keep constant visual reminders
around the house (on the bathroom mirror and in her
wallet), just to help keep her on track.
“Every week my limit for what I can spend is a hundred
dollars, that’s it.
“After I pay all my bills and pay all the debt, a hundred
dollars a week is all I have to spend and that has to go
on petrol and any public transport I take, or if I want to
go to the movies or eat out”, she says.
Donna stays motivated by celebrating the little things,
constantly checking her account and getting excited
about every thousand dollars paid down.
“It’s about living every day like you need to achieve
those goals, and every day remembering those goals.”
Two years on, Donna is a new woman. She’s almost halfway through paying off her debt, and has a new partner,
who she’ll soon marry.
“The minute you get in control of your finances, and the
minute that burden is lifted off your shoulders, you start
becoming a calmer person, and so I am less anxious
about paying bills and I can feel good about spending
money, instead of feeling guilty every time I take out my
wallet.”
Donna is enormously satisfied with her job as a teacher,
and gains a great deal personally from working with the
students. Although it can be difficult at times to live as
though ‘money isn’t everything’, Donna is determined
to continue forward with her budget, living within her
means, and hopes to increase her ‘rainy day fund’ to
$10,000.
“I will never touch another credit card as long as I live!”
www.teaching.moneysmart.gov.au
ASIC Infoline: 1300 300 630
© Australian Securities & Investments Commission 2012.
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