So you’re up Shirt Creek* and have nothing to use as a paddle, your boat is sinking and you really don’t want to get any of that “water” in your mouth. What do you do before you drown in debt?
Act fast. If you have craploads of credit card debt, once-upon-a-time interest free whitegoods that are no longer interest free, and a car loan that’s costing you more each year than the car is worth, it’s time to get serious. Yep, it’s time to pay them off.
Firstly, write down all your loans on a piece of paper from the highest interest rate to lowest. Then start making minimum repayments on all but the highest interest rate loan. Take the loan with the largest percentage interest rate and pay every spare cent you have into it until it’s paid off. When it’s paid off, the money that was going into paying it off gets added to the minimum repayments you are already making on your second highest interest rate debt. Repeat the same for this debt and keep going with the same strategy for the remaining debts. You should find that they get easier and faster to pay off.
Should you call a debt consolidation company to turn all your debt repayments into “One easy monthly repayment”? I wouldn’t. Even if the company says on its site that is was featured on such reputable TV programs as A Current Affair and Today Tonight. So are dodgy used car salesmen. Debt consolidation companies charge you for their service, a service you can do yourself for free.
Contact your lenders and request a lower interest rate or a holiday from repayments. The earlier you get in touch with them, and the more detail you can give to how you are going to pay them back, the greater the chance they won’t just hang up on you. The worst they can do is say no.
DO NOT roll all your debts into a lower rate loan (like a mortgage) while continuing to make minimum repayments on the low rate loan. Many mortgages allow this feature, and people who don’t have it may look to refinance their debt. This can turn a 5 year car loan into a 25 year car and house loan, and it will cost you big time in the long term.
Now, all the above assumes that you actually can pay those debts off, and that you still have the income you did when you took on those commitments. If you don’t then you risk going bankrupt and losing everything. Before you get into this situation I want you to immediately click on this link for financial counsellors. Even if you reckon she’ll be right, a financial counsellor would rather spend 10 minutes helping you to fix your smallish problem today, than spend hours fixing your big problem in a couple of months.
I’ve seen many people successfully steer their boats through Shirt Ck’s rapids and enjoy life on the beautiful lake at the end. You can too.
*Shirt Creek’s name has been changed.
Nick paid off his first mortgage by age 27 on a below average wage. He now runs xyfinfree.com.au anonline course on money for generations X and Y. He is a married to a beautiful SAHM and is a dad of one little chicken who regularly tries to scratch his eyes out with her razor sharp fingernails.