The time to act on debt is now
MOST people who write in need a little plastic surgery with their credit cards but some need a total brain transplant, says Scott Pape.
Barefoot Investor
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MOST people who write in need a little plastic surgery with their credit cards but some need a total brain transplant.
DENISE ASKS: Love reading your column each week, and this has taken me way too long to write to you. My husband and I earn $147,000 between us and have got into serious debt over the years through bad business decisions and other reasons. We have our own home with a mortgage of $346,000, and two investment properties — on one of them we owe more than it is worth now, and the other we could sell outright (valued at $150,000). We have credit card debt of $160,000 and two personal loans of $70,000.
BAREFOOT SAYS: Most people who write to me need a little plastic surgery with their credit cards — you need a total brain transplant! You’ve got $230,000 in personal debts, so you’re essentially tied to the railway tracks while the train thunders down the hill. It’s now or never. I’d sell the investment property, but make sure you allow for any capital gains tax. Use it to pay off the bulk of your credit cards. Then I’d lodge a hardship variation for each of your remaining debts — aim to negotiate a freeze on your repayments for six months. Use that six months to work three jobs so you can come out of the blocks with a fighting chance. Toot! Toot!
FUTURE LOOKS ROSY
PAM ASKS: I’m facing a dilemma: whether to retire now or to keep grinding. I am 66 and my husband is 68 — he retired some years ago — and we have about
$1 million in superannuation. Our home is worth around $450,000, no mortgage, but the house is pretty run down and needs some major renovation work. I had a mild heart attack six years ago. Although I do try to look after my health, I cannot change my DNA. My mother died of heart attack at age 68, but my father lived to 87. What would you do?
BAREFOOT SAYS: If you want to work out the odds of when you’ll meet your maker, fill out the (free) in-depth questionnaire at mylongevity.com.au. It’s similar to what actuaries at insurance companies use. Whatever the website spits out at you, I wouldn’t advise betting on living only until you’re 68. That’s only two years away — though it would certainly make your financial planning much easier, and a lot more fun! I’d plan on living until you’re 100. The worst thing that could happen is that you die early, with too much money. Either way, you’ve already saved up enough money to enjoy a comfortable retirement — around $65,000 a year (indexed to inflation), which should last you until 100. If you want to be really conservative, you could work a few more years to pay for the renovations. But I’d say you’re sitting pretty.
A SECOND CHANCE
GARY ASKS: I’m 42 and I feel I have one shot left. I’m just three months away from my bankruptcy being removed from my credit file — a failed relationship, and a failed business, behind me. I now have $50k saved. I earn about $145k and have had a great secure job for the last three years. So I am at a crossroads. Who will give me a loan? What is the best way to get my financial future back on track?
BAREFOOT SAYS: Fella, you don’t have just one shot left — you’re not even at the halfway mark! Instead, think of your experience like you’ve graduated from the university of hard knocks. And yes, you’ll find plenty of lenders who’ll lend you loot, but that shouldn’t be your focus — that’s what got you in trouble in the first place. You’re earning good money, almost $150k a year, so you’ll be fine as long as you stick with the program. What’s the program? Keep the $50,000 for emergencies in a Mojo account. Boost your super by salary sacrificing an extra 6.5 per cent of your pay (an extra $628 a month). Buy a modest home you can afford, with a 20 per cent deposit. Pay it off quickly. You can’t not win with this plan.
TEAM WORK IS VITAL
TONI ASKS: I’m a 37-year-old married woman with two kids. My husband works at one of the major banks and looks after all things financial. Only recently have I thought about investing. Although I have faith in my husband to manage the finances, I want to be able to independently manage my own stocks. But I don’t know where to start. Any advice would be helpful!
BAREFOOT SAYS: I always say that a man is not a financial plan, but in your case he’s your wingman. You should be doing this as a team. First, because marriage is a team sport, and with something as important as money you need to be on the same page. And second, because I’ve seen too many families lose a partner, and the grieving widow has no freaking clue how to manage the money.
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as The time to act on debt is now
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