Debt Destruction– Tips

Debt relief or debt destruction is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.

• Debt Consolidation

By consolidating personal or consumer and credit card debt into your mortgage it turns a repayment of years into decades. Many advisers and mortgage brokers will recommend that you take this action but it can be a real trap. Deal with the real problem of overspending and not budgeting so that the symptoms don't return in the future.

• Set a Shorter Loan Life

Many banks today offer 30 year mortgages, which are supposedly designed to help with new home buyers’ affordability however it also serves the banks as it keeps people in debt longer. A much better strategy is to work out how much you can afford (push yourself a little), then calculate how long the term of the loan will be with this repayment amount, and set the loan term accordingly - with a small buffer.

• Pay Off Your Credit Card

Credit card points never made anyone rich. Get off the dependency of a credit card - even if you pay it off every month, as it is too easy to fall prey to. Use a Debit Card instead and let the idea of building credit card points go.

• Use a Simple Mortgage Product

A basic Principle and Interest home loan often has much cheaper fees and a lower interest rate. Home loans with fancy facilities are designed by banks to keep you in debt longer. It is a well-known fact that redraw facilities extend the life of a traditional home loan due to lack of discipline which means that you could be paying thousands or tens of thousands of dollars in extra loan and interest repayments.

• Don’t Always Look to Pay off The Highest Interest Rate First

Debt is not often an interest rate or math’s problem - it's more often behavioral. Go to the source of the problem to change the outcomes.

The 7 Step System Debt Busting System

When trying to get out of debt, many people look at trying to pay off the highest interest rate loan first typically being the credit card, or a department store hire purchase card. Of course, if the card is not destroyed or new disciplines put in place then the amount owing can become a moving target.

In summary, the steps are...

1. List all current liabilities and repayments
2. Order these based on the ‘Repayment Ratio’
3. Pay off the loan with the lowest Repayment Ratio first. We all like to achieve goals and celebrate wins, which helps keep the discipline of sticking with the plan as we can actually see that we are getting somewhere
4. Set time frames in which the debt is expected to be cleared, and note these in your diary
5. Once each loan is paid off, use the extra cash flow from the repayments freed up from the previous loan to put against the next loan on the list, being the loan with the next lowest repayment ratio
6. Continue until all loans are cleared
7. Once all loans are cleared, invest the funds that were being used for loan repayments to build wealth and passive income.

Steps Break Out of the Debt Cycle

• List all current liabilities and repayments

Lists all current liabilities by name, the amount owing, the current repayment amount. Then divide the loan amount by the amount of the repayment giving a ‘repayment ratio’.

• Order these based on the ‘Repayment Ratio’

Once the Ratio is calculated, put them in the order of the lowest ratio first.

• Pay off the loan with the lowest Repayment Ratio first

This will take a short time, so there is plenty of motivation to keep going as ‘the wins’ are celebrated and a feeling of success builds motivation. If there is extra cash flow available, then this should be directed towards the lowest ratio loan.

• Set time frames in which the debt is expected to be cleared, and note these in your diary

Using a loan calculator there are many available online or check out the Debt Busting to calculate the estimated repayment end dates and then set these in your diary. You might also wish to put a table on your fridge or somewhere prominent to keep you focused and on track.

• Once each loan is paid off, use the extra cash flow from the repayments from the previous loan to put against the next loan with the next lowest repayment ratio loan

Cascade each loan payment down to the next debt on the list which creates the snowball effect and will have you paying off these debts much faster than the target dates above. This is simply employing cash flow that was being used beforehand so is not changing your cash flow position at all.

• Continue until all loans are cleared

Simply follow steps 1 to 4 until all loans are cleared. Assuming only the current loan repayments are used then debts would be cleared in just less than 12 years. If the Debt Freedom Plan is implemented then all debts would be cleared in less than 3 years, saving a massive amount in loan repayments and lots of interest.

You can apply for an attractive offer with best possible Rate of Interest and Terms for Personal Loan, Business Loan , Home Loan and Car Refinance Loan.

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