Get On The Front Foot With People You Owe Money To

Remember this saying: “The creditor will always have a better memory than the debtor”. To sum up, the people you owe money to are not going away. A couple I recently spoke to learned this the hard way. They were living on two wages, earning decent money. He was on $75,000 a year and she was on $45,000 a year. And while they had never done a budget or saved anything for a standby fund, up to this point they were doing quite well.

That is, until the day they now call “the big change”. Quite out of the blue life struck them with a curveball right when they did not need it. The husband was let go with one day’s notice (talk about trying times). In fact his work was not even going to pay him out his last month’s wage. As you can imagine, panic set in pretty quickly.

5 Top Myths About Debt And Money

Here are five questions we always get here at Mr Home Budget. They are the ones we hear time and time again.

1.Why should we try and get out of debt, aren’t all governments, businesses and householders in debt anyway? We are just doing what everybody else is doing?

Well no! If everybody was in debt, there wouldn’t be enough money in the system to pay everyone back. While it is important to understand that “yes” most of your neighbours are in debt, the ones with no debt have the biggest smiles. Just because most people are in debt does not make it right.

2. Life is for living. Why should we deny ourselves the good things now?

Of course life is for living. However, life can also last a very long time. And you will more than likely have a good 20 years of living after you have retired. Who will fund this time of approximately 7300 days. Or put another way; 21900 meals. Do you really think the government will keep you in the style that you have been living? Make the changes now, to prepare for this time.

3. Don’t you need a credit card to survive?

No way! Anything you can pay for with a credit card, there is a way to pay for it with cash. And the good news is it will be your own cash, not cash on loan. We as Australians have bought into the idea that we need a credit card in our wallet or purse. But it is one big marketing ploy to make it feel normal to everyone. A debit card will do 100% of what a credit card will do and is just as safe.

4. Leasing a car is what smart people do?

Leasing a car is what people without calculators do! There is no evidence that leasing saves you money, in any way, shape or form. Regardless of what the car salesperson says. Do the sums for yourself if you don’t believe me. Buy a second-hand late model car, you will save bucket loads.

5. We don’t have the willpower to get out of debt.

If you are reading this, you do. Sure there are no quick fixes for getting out of debt. But people look for them everywhere (X Lotto). You just need patience and time. If you can combine these two elements you will win in the end. To quote Winston Churchill “Never, never, never give up!”

There`s Nothing Free About Interest Free Offers

How many times have we seen the adverts? You know the ones "buy today with no repayments until 2014". It makes it seem so easy. You can own the latest and greatest right now and pay it off over time with zero interest.

Well zero interest is an interesting term. Yes it is zero interest unless you don`t pay the full amount in the time allowed. Then you get stung by the full interest, for the whole price, backdated from the date you signed up. And by the way, the interest charge can be 40% or even higher.

Plus the company who signs you up to this deal will generally offer you another temptation of a credit card. This credit card is linked to the interest free deal and also gives you an extremely high interest rate.

Sure 3 or 4 years seems like a long time to pay something back. However it will be here quicker than you think. There are so many things that can go wrong in a process like this. Plus there is a contract for you to sign which has more words in it than the yellow pages. And believe me, none of those words are set up to protect you the buyer.

We received an email from a reader. Let`s call her Annie (not her real name). She had taken a two year interest free offer on some furniture. After making the payments regularly for the first 10 to 12 months she started to fall behind. Now she is 2 months away from her final interest free payment. But she has only paid off around 70% of the item. And there is no chance for her to raise the remaining money to pay it out. She is in really bad shape as she knows she will get backdated with the whole interest at a rate about 30%.

However Annie is not alone. In fact in the USA, 88% of all people taking out these sorts of deals never pay off the item in the allotted time.

It is such a minefield when you enter into an interest free deal. It`s time to get rid of these interest free offers from your life once and for all. If you can`t afford it, don`t buy it.

Australia - The Final Straw On Debt

On the 27^th of Dec. 2009 Australians were in 1.2 trillion dollars of debt. This is credit cards, personal loans and mortgages.

This works out to be $56,000 for every man, woman and child. But more alarming than this figure is the statistic that it is up 71 percent from five years ago.

Let’s do the sums. So if it is up 71 percent from 5 years ago what does this mean? Well by my calculations, in Dec. 04 as a nation, we owed $33,000 per every man, woman and child. This has climbed by an average of 11.2% each year, every year since then.

On average our debt has gone up by 11.2%. This is not a small percentage; this is a huge percentage. Especially, when you consider most people are only getting a 3% to 4% pay rise each year.

Did you know at 11.2% our debt doubles every 6 years and 3 months. If it keeps going this way we will be at $105,880 by Dec. 31^st 2015... Only six years away.

Our debt is now over 100 percent of our annual Gross Domestic Product. That means if you took every dollar spent on everything for the entire year in Australia on EVERYTHING. Our debt is more than that amount!

Are we going to have the straw that breaks the camels’ back? Will there be a turning point in this debt or will it still be hurdling towards higher and higher debts in 10 years time.

Let other people add to the debt statistics. Let other people pay interest on their debt. Let other people take out loans for holidays and TVs.

Don’t be part of this statistic any more. Help reduce your debt to well below the Australian average. Get rid of your credit cards. Pay back your personal loans. Pay as much off your mortgage as possible. Quietly and quickly reduce your debt. And do it NOW!

Some might describe this kind of debt as a house of cards. Don’t let the house fall down with you being one of the cards. If you get rid of your debt you should ride out the crash much easier when it does come.