Starting With Nothing

Thats right, unfortunately the first part of creating wealth is removing debt. In the short term it isnt a lot of fun, but in the long term it will get you miles ahead.

I, not so long ago, had a $6000 no-repayment loan (being a university student) that i had sitting over me. It didn’t require me to make any repayments until 3 years after i took the loan out. After about one and half years, i started working full time, and was making a fairly large salary. Did i pay this loan off in the next 3-4 months like i should have? (and could have fairly easily) No, because it was an ‘invisible debt’ to me, and as such i went about spending my money on other more trivial things (TV’s, Stereo’s etc).

In the end i did pay this off at around the two and a half year mark, by which time i had repaid something around $8-9000 dollars. The fact is, if i was a little more self controlled i could have saved myself a lot of money over the previous year in interest!

Sometimes debt can seem unending, however the best way to get back in the black is to set aside a monthly amount to repay. Don’t leave this until the end of the month, after all your expenses, when you say “what do i now have left to reduce my debt with?”. When this happens, the amount you put away is variable, and also generally smaller. Set yourself an amount at the start of the month, and then work out your monthly budget with what you have left. It may mean you miss out on buying that new TV this month, however you’ll be much happier when your out of debt months sooner!

For example, say you have a debt of $5000 at an interest rate of 9% (somewhere in between personal loan and home loan rates here in Australia).

• If you repay $100 a month it will take you 5 years and 3 months to pay off the loan (paying $1230 in interest).
• If you repay $200 a month it will take you 2 years and 4 months to pay off the loan (paying $512 in interest).
• If you repay $300 a month it will take you just 1 and a half years to pay off the loan, paying only $318 in interest!

See how much that little extra can dramatically reduce the time you are in debt. And just think, the quicker you get out of debt, the quicker you can make some money for yourself (and think about that monthly repayment that, instead of going to your loan, is going straight into your bank account!).

So think about your situation, and work out how long its currently taking you to pay off your debts. Also have a look and see how fast you could pay them off, it might be quicker than you think!