Strategies To Eliminate Debt

Have you ever heard the saying; you get what you focus on? It is just a law of the universe, don’t believe me; think about those times when you’ve hurt your toe or foot or hand or elbow, do you then tend to focus on it and try to be careful not to bump it? But despite all of your best efforts to protect it you then seem to hit everything in sight, drop anything on it, fall over or basically, knock or run into everything you possibly can! Or maybe you are focusing on being really quiet not to wake up your sleeping partner or child, but then seem to bang and crash about by being clumsy! Maybe that is just me. I believe it is a rule you just can’t escape.

Well guess what, this works in the debt world as well. If you focus on your debt, you will tend to get more of it.

What if instead of focusing on eliminating debt exclusively, why not focus on increasing your income first to then eliminate your debt far more rapidly than you ever thought possible? Perhaps this is a new way of thinking about it altogether.

Now I’m not saying forget about your debt all together, I’m suggesting stabilize your debt and meet your minimum repayments and then focus your efforts on creating another income source or accelerating your cashflow so you can pay down your debt far more rapidly. This is simply the difference between a proactive versus a passive approach to debt reduction.

What is the current state of affairs?

Most Australian’s are up to their eyeballs in debt and in reality are 2-3 years away from becoming debt free on things such as credit card debt, store cards and personal loans. This is simply because they exclusively rely on trying to save extra money from an already tight budget and fighting with rising costs of living and then try to pay down debt with what is left over, which usually is none, this can take forever and lets face it is slow, frustrating.

So how does my strategy work?

What if instead of saving to pay down debt, you could instead create an additional income stream over say a 6-12 month period, which you could then re-direct exclusively towards your debt, and then use this in addition to the extra weekly, fortnightly or monthly savings you can distribute there also? If you had more disposable income, would that then allow you to eliminate debt far more rapidly? You better believe it.

Guess what the real kicker is? After your debt is eliminated, you still have an additional income stream, which you can use to invest in assets towards your financial freedom or just bump up your lifestyle a bit with more holidays or some of those guilt free purchases without debt or even pay down your own home.

One of the strategies I teach to my personal coaching clients creates 2-3% returns on your investment per month, yes you heard me per month, so if you invested $10,000 you will see a return of $200-$300 return every single month or perhaps $30,000 and earn $500-$600 per month extra income. Even better, it is conservative, simple and time efficient; almost sounds too good to be true doesn’t it? I thought the same until I started using it.

Some of you will be thinking, “That sounds great… but first, where do I get the money? And secondly, if this is so good why haven’t I heard of this before?”

Although most Australian’s do have record high debt levels, many also have massively untapped resources lying around them at any point in time that can be used astutely to reduce debt rapidly.

Although most Australian’s do have record high debt levels, many also have massively untapped resources lying around them at any point in time that can be used astutely to reduce debt rapidly. This could be equity in a personal home or investment property; it could be in those shares you bought 10 years ago, which are now just sitting in your bottom draw doing not very much; or perhaps it is simply cash you have sitting in the bank because you don’t know what else to do with it.

One of the core activities you need to do a couple of times a year is to do a stock take of where you are financially and see what assets, liabilities, incomes and expenses you have coming in on a yearly, monthly and weekly basis. You can then use this time to uncover what assets are not performing up to scratch for you or in short are being lazy… or if you’re not sure where to start, then it’s time to get a coach to help you and make a proactive decision to get out of your debt spiral

I did this exercise with one of my clients recently; what we uncovered were large cash deposits simply sitting in a bank account earning only 3% per annum, untapped equity in their own home, and an ill performing super fund and they were struggling to keep up with personal debt and couldn’t seem to get ahead even though they were earning an above average income.

We spent the next 6 weeks, creating an investment strategy and debt reduction plan and beginning to get all of their
lazy money working efficiently and effectively for them. Instead of earning only 3% per year in a bank, it is now on the way to creating 2-3% per month in a conservative strategy using blue-chip shares, and with a step by step plan to pay down their bad debt to zero within the next 6 months.

Without this intervention, this couple was on the road to spending the next 3-5 years desperately trying to pay down debt by simply saving.

Lets look at how this can work in real life.

Imagine if you had $20k personal credit card debt at an interest rate of 18%. After setting a budget you have found and committed $200 per week or $800 per month to begin paying down your level of debt.

So when you have a credit card we have two things we need to focus on: –

1. Our ongoing interest repayment, often this will be about 18% per annum. So from a $20K credit card debt this is going to be $300 per month of interest, so we know we have to pay this every single month and this does not decrease your credit card debt, just keeps you from getting further into trouble.

2. The second part is actually paying down the principal amount, so out of the $800 per month, $300 needs to be committed to paying the interest and we can use the other $500 per month to begin getting rid of our debt once and for all.
If you were just using that $800 per month to meet your interest repayments and pay down your principal, you are looking at 2 years and 9 months to completely eliminate your debt and start again at ground zero, this is of course taking into account you make no additional purchases with it (which for most people is highly unlikely, just look at Harvey Norman’s on the weekend to see the proof!)

Now what if instead of just focusing on paying down debt, we instead focused on creating another income stream using the same $800 a month we’ve spared.

It is still important to pay your $300 per week interest amount, which you have to pay, but instead of adding those extra $500 per month to pay down your credit cards $20K principal amount, you used the extra money to create an extra level of income for you, which can earn for you 3% per month.

What is the result?

Rather than taking 2 years and 9 months to pay down your credit card debt you can pay it off 5 months earlier! Saving you $4,000!

Or what if you decided to keep creating this income for the next 5 months and then pay off your credit card? So you will still completely pay off your credit card in 2 years and 9 months, but on top of that you will come out with an additional $5,753.78 in cash! I can show you how to do this!

Lets look at the next step

Now imagine if you paid off your credit card and continued to commit the same contributions your were making to your credit card of $800 per month to continue building a second income for yourself, what would be the result?

After 2 years

You would be earning an extra $279 per week in additional income or $14,553 per year in almost passive income and also have $37,317 in cash savings.

After 4 years

This is now 4 years after you’ve paid off your $20K credit card using the same savings plan as you started with. You are now earning $775.51 per week or $40,326 per annum and have $103,400 in savings and could comfortably drop back to part time work for most.

After 6 years

You have now replaced the average Australian’s income of $62,000 per year and have $158,000 in savings! Imagine that… $20K in credit card debt to $62,000 per annum in almost passive income and $158,000 in savings.

What is even better, this strategy is conservative, easy to learn and only takes 2 hours per month to implement. We can all create 2 hours per month in our life to implement this, especially if we can use it to pay down our debt to zero, pay off your home faster than you ever thought possible or replace an income.

So many people get overwhelmed and caught up in debt; they focus on it and spend all their time stressing and worrying over it. Why not try change your thinking, look outside the box and focus on creating something positive in a new income rather than simply working so hard to pay down debt. At the same time, you will be empowering yourself to create an additional income stream not just for now, but also potentially for the rest of your life.

All this by simply changing what you focus on and working alongside someone who can coach or mentor you and guide you to proactively make the most of your money, increase your income and step out of your debt spiral!

Todd provides coaching, practical workshops, and keynote talks to help professionals of all ages achieve their own versions of a wealthy lifestyle. By drawing on his vault of knowledge in business, personal growth, wealth psychology and investment strategy, Todd is helping people just like you; generate more wealth to support your highest values in life.

How Do the Consequences of Bankruptcy Alternatives Compare?

Let’s talk about avoiding bankruptcy and what you can expect will happen in each situation. Some options are more favorable than others and once you have explored all of your options for getting out of debt, you may find bankruptcy to be your best fit after all.

1. Make More Money

This is a no brainer actually. When you’re looking to get out of debt and avoid bankruptcy, the best thing you can do is make more money. I know, it’s easier said than done, but have you really explored creative out-of-the-box ways to raise your monthly income? Here are some of my suggestions that have helped past clients:

Rent a room to create rental income;
Get a second job;
Ask for a raise at your current job;
Put the kids to work and if the are working, STOP PAYING THEIR EXPENSES;
Have a yard sale, or sell items you no longer use on Craigslist;
Start a side business repairing or repurposing items for resale

2. Cut Expenses

There are only two sides to the budget ledger; income and expenses. Another best strategy is to not only increase your income, but cut expenses too. Any money left over can then go to paying off debts and avoiding bankruptcy. Here are some often overlooked ways to cut expenses:

Transportation: Cut transportation expenses by taking public transportation to work. You would be surprised to notice your stress will go down with public transportation. If you plan to drive, be sure your car is well-maintained and paid off. Maybe you need to downsize and get a cheaper car that is paid for to cut out the car payments.

Insurance: Home and auto insurance costs can be cut by examining the amount and type of insurance policies you have. If your car is older, consider cutting out any physical damage coverage (comprehensive/collision) and maintain liability only. Liability limits on insurance policies only need be enough to protect your assets. So, if your car and home have no equity, then you don’t need a high limit insurance policy. Also, shop around for insurance.

Utilities: Turn off the lights and air conditioning. Cut that cell phone bill, or cut the land line. Call each company to reduce services that will reduce your bills, or cut them completely.

Groceries: Take up couponing only where it makes sense by buying your shampoo, soap, toothpaste, dish and laundry items on coupon. Paper products are another great household item to buy on coupon. Cut your grocery bill by planning your weekly meals before shopping and consider other meals that you can use similar ingredients for. Cooking at home can not only save money because it’s cheaper than dining out, it can also help you live healthier.

The consequences of tightening the budget by increasing income and reducing expenses are that it’s a long-term lifestyle commitment that could take longer than five (5) years to pay off all your debts. Even after maximizing this strategy and applying all your disposable income toward debt, it may not be enough and you may still be faced with bankruptcy. However, I still believe that knowing your numbers is an important step in financial transformation and eliminating debt no matter which direction taken.

3. Debt Settlement

If you’re behind on paying credit cards, they can be negotiated; sometimes for pennies on the dollar. This can seem like a money saving strategy, but can leave your credit score in shambles in the wake. First, you’ll need a hefty savings account so that when you strike a deal, you can pay a lump sum to settle the debt. Be sure to get any settlement in writing and ask them to remove the trade line from your credit report. You may not get credit clean-up, but it doesn’t hurt to ask either. This can be an effective debt elimination method if you only have one or two debts to work with. Any more than that and a bankruptcy case would be a cheaper, better, faster way to get out of multiple debts at once.

Accounting Services for the Average Consumer

You may think that accounting services are only useful for businesses or individuals with lots of assets. While some firms cater to those types of customers, there are also many companies that offer services for the everyday consumer with various levels of income, assets, and financial needs. Following are some of the most common accounting services that may be valuable to different types of clientele:

Tax Management

While there are a wealth of software programs that allow consumers to complete their own tax returns, it is wise to have professional help to guide you through the process. This ensures that you are not paying more than you should and that you are receiving the maximum amount of deductions and benefits. A professional can also help with tax planning so that you aren’t surprised on tax day, as an expert should always be up to date on the most recent tax laws. Most firms will charge based on the type of information that is filed, so you’ll usually pay according to the complexity of your financial situation.

Many firms will include IRS representation along with their tax management services. If you are audited or receive a communication from the IRS, the tax professional can work with the IRS on your behalf.

Estate and Trust Planning

You want financial security while you are living, and you want your loved ones to have that same security when you pass. A qualified accounting firm can help you work through the process of evaluating assets and planning how those assets are best distributed upon your death. They can assist with naming executors or other principals. These services provide security and ensure that your family will not have to worry about the logistics of handling these types of issues at a difficult time.

Financial and Retirement Planning

You need a financial plan for your current age and stage in life. The products and decisions that are right for you depend on your assets, income, medical needs, dependents, liabilities, and financial goals. Do you have children who will need college tuition sometime in the future? Do you have a retirement plan that ensures you will have a comfortable future? A professional firm can help you talk through all those details and come up with a plan that helps you meet your goals without compromising some of the things that are important to you today. They can be the experts on the various investment strategies available to you and prompt you to make necessary adjustments.

Debt and Budget Advising

If you are having trouble managing your bills, a qualified service can help you come up with a budget that works for you and works to eliminate or reduce your debt. They can also represent you to collection agencies and advise you in matters related to consolidating debt or reducing debt liability through agreed upon settlements with creditors.

Accounting services are not just for businesses. Contact a firm that specializes in tax management, financial or estate planning, budget planning, or other related services for the average person. They can help you with your particular financial needs and goals.