Ditch the flash car and the home plan will have wheels

IF you’ve got a burning money question, or simply want to win a fight with your hubby, shoot over to Barefoot Investor and ask me a question.

Scott Pape advises readers not to live beyond their means.

I REALLY, really want to buy a studio apartment (I’ll spend $300,000, maximum) to live in and escape the rental trap. What I want to know is how much of a deposit do I need?

I’m a 40-year-old guy, I work in fashion (retail) and earn $55,000 a year. I have $32,000 in a savings account, and my only debt is $55,000 (a low-interest dealer loan) for my Audi!

Thanks,

Eric

Hi Eric,

First things first. Sell the bloody car. Seriously mate, you’re not fooling anyone — you’re earning $55,000 a year and you’re driving around town in an Audi?

As the Chinese proverb says: “don’t own a car worth more than half your income — especially if you’re 40-years-old and want to buy property”.

Take the money from the sale of your car (less the $8000 you spend on a reliable 2006 Toyota Corolla), and put it towards your deposit. But keep saving. I want you to have at least a 20 per cent deposit.

And I‘d shoot for a one-bedroom apartment rather than a studio — it’ll be more expensive, but long-term it’s a more sustainable living option.

CREDIT NOT DUE

Scott,

I regularly read your columns with interest, and find them well researched, informative and relevant to our company, Credit Repair Australia.

With approximately 140 staff, Credit Repair Australia is the country’s oldest and largest credit restoration company.

I’ve noticed that some of your more recent articles you have depicted the credit restoration industry in a negative light or, as you put it, as having “less credibility than a cheating ex-boyfriend”.

My understanding is that your main concerns are that companies like ours overstate our success rate and that people can simply “do it themselves”.

However, many of our clients choose to appoint us when the circumstances are a little more “grey” and so they then require someone to assist.

Credit Repair Australia also operates under a strict, self-imposed code of conduct.

Regards,

Mitch Symes, Credit Repair Australia.

Scott Pape: The above question is an edited version of an email I received from Credit Repair Australia

Hey Mitch,

Actually, I think I referred to the credit restoration industry as “the financial equivalent of spray-on hair in a can”, but “cheating ex-boyfriend” is also good.

My beef with you guys is that you sting people (a non-refundable) $990 fee to lodge a dispute that they could do themselves free of charge.

You might be a big company, but it all sounds, well, kind of shonky to me. Hang on a minute, maybe that’s why you won Choice’s Shonky award for ‘credit despair’ in 2013?

OUR GOLDEN YEARS PLAN

Hi Scott,

My husband and I are in our seventies. Our money is mostly in our home. We don’t want to downsize but would like you to advise us about the best way of going about getting some equity from our home (which is fully paid up). We would be very grateful if you could help us, as we haven’t got a clue what would be the best way to go.

Regards,

Wendy and Simon.

Hi Guys,

It sounds like you’re asking about a reverse mortgage.

(A reverse mortgage is exactly that: a mortgage in reverse. Instead of making payments, you receive them — and instead of your mortgage going down, it goes up).

Thankfully, I don’t get paid to promote this crap, so I can give you an honest answer.

Stay well away from them.

Let me count the reasons they suck:

First, the interest rates most providers charge are outrageous.

Second, it’ll likely reduce your pension payments — whereas your home is not calculated in the pension assets test.

Third, your debt will compound against you: roughly, a $100,000 lump sum will end up ballooning to a $466,000 debt in 20 years’ time.

Finally, I don’t like seeing people in their seventies getting into debt — or navigating a highly complex financial product with big thick terms and conditions written by bankers’ lawyers.

Here’s what I’d do instead.

Sit down and think about how long you’ll realistically continue living in your home — and what assets you’ll need when you eventually go into aged care. Your best option is to downsize … eventually.