Debit pays off, with interest
IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.
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QUESTION: How do you just let go of the credit card? We usually pay off one credit card most months to $0 balance; the other one we used to renovate our house a few years ago as we don’t have a mortgage and it’s a low interest rate, similar to a personal loan rate. I’m bad and evil with credit cards — I feel I can’t let go “just in case”. How do you get over that psychological hurdle?
Casey
ANSWER: Let me try. When you turned 18, you were probably “rewarded” with your very first credit card. What that first credit card said to your young, impressionable brain was, “the bank sees me as a grown-up who can be trusted with their money!” What it really meant was that they were signing you up for a $5000 loan, which at their promoted easy minimum payments, would take you 33 years and $17,181 to pay off. Slowly but surely the rising payments eat away at your confidence and self-worth, to the point that years later you’re writing to me asking why you still can’t kick the crutch of their high-priced credit. Here’s the truth: if you find yourself in a genuine emergency, these are the last people you can count on. You don’t need their money. bet on yourself. Cut the card up and get a debit card.
DIG DEEP TO DODGE SINKING FEELING
Q: I have a sinking feeling in my stomach, day and night, when I think about money. We’ve gotten ourselves into a huge mess and we need your advice to get out of it. I’m 47, my husband is 58, and he makes about $160,000 a year. We have two girls, four and six years old. We have a $730,000 mortgage on a house worth $1.1 million, a credit card debt worth $6000 and a personal loan of $10,000. We also owe $370,000 on an investment property worth $560,000, but we earn $560 per week from that with rental income. (We also have $200,000 in super.)
We could buy and move to the suburbs. What do we do? I just feel we have so much debt and I don’t know how to get rid of it.
Emily
A: There’s no reason to be sick to your stomach — though to be fair, you’ll need to have some guts to follow my plan! First, your husband needs to pull his finger out and commit to being totally debt free by the time he turns 60. How? Sell the investment property. Cut up and pay off the credit card, and the personal loan. And most importantly, downsize your home and buy something more affordable for $600,000. After that he needs to start salary sacrificing into his super up to the pre-tax limit of $35,000 (roughly half of which is paid by his employer), and chip in an extra $20,000 in after-tax contributions into his super. If he can do that until he’s 70, he should have close to $1 million. When your youngest goes to school next year you should get a job, and start saving for braces and school fees, and tennis lessons. Things will be tight, but you’ll be OK if you’ve got a gutsy husband.
PARENTAL COSTS HARD TO CONCEIVE
Q: We really want to afford IVF — but we simply can’t get a loan to pay for it. We just don’t have any spare money, as it’s all tied up in payment plans. I’ve been out of work for a while now, and have finally started getting some casual jobs. My husband earns about $55,000 a year, and we have a $230,000 mortgage.
Laura
A: The question isn’t whether you can afford IVF, it’s whether you can afford the success of IVF! There are cheaper alternatives to high-priced IVF procedures — some that result in $500 in out-of-pocket expenses, though the jury is out on their success rates. However, I’m pretty sure you didn’t write to me for medical advice, so let me focus on the money advice. If you’re unsure about scraping up a few grand for a procedure, the cost of kids will crush you. You should get your annual household income up to a minimum of $100,000 (you need a full-time job), and you should have the security of at least three months of living expenses before you fall pregnant.
NO URGENCY, BUT HELP WILL ARRIVE
Q: My wife, who is a stay-at-home mum, has a HELP debt. We’d like to have more children so it doesn’t look like she’ll be going back to work soon. (That may change but for now that’s the plan.) We’re debt free, but we have no Mojo as we’re saving 55 per cent of our income to put together the bare minimum on a mortgage deposit. It’s unlikely my wife will want to work again — should we pay her HELP debt in the next 10 years? I hear conflicting views as to whether we should just leave it or pay it off now and get it over with.
Mark
A: Save for your deposit — don’t pay it off. If your wife doesn’t go back to work, she won’t have to make any repayments. Even if she eventually goes back to work part-time, so long as she earns below the minimum (indexed) repayment threshold of $53,345, she won’t need to make any payments. However, don’t forget about it completely, because her HELP debt will continue to be indexed each year until the debt is paid off. And there’s absolutely no guarantee that in the future a debt-laden government won’t change the rules and come chasing her for it (as they probably should).
Originally published as Debit pays off, with interest
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