How To Pay Off Debt Fast Using The Stack Method MONEY

BY CRAIG DEWE

Just cause you can buy it doesnt mean you should.

Whether it’s consumer debt on credit cards, student loans or a mortgage, most people find themselves weighed down by debt at some point in their lives. This can keep us working jobs we hate just to pay the bills and keep our heads above water. By learning how to pay off debt fast you can release this burden and remove some of the stress from your life.

Today I’m going to show you how to pay off your debt as fast as possibleusing the Stack Method.

Step 1: Stop Creating New Debt

Most people do not receive training in handling money and how to live within their means. If you’re in debt then you’re probably one of these people and it’s time to bite the reality bullet. It’s going to be impossible to get out of debt unless you retrain your financial habits right now.

You must make a stand against all the marketers trying to take your hard earned money or offering easy finance. You don’t need more stuff to make you happy. What you need is financial peace of mind.

So cut up your credit cards or freeze them. I mean this literally. Put them in a container of water and stash them in your freezer. Then when there’s an opportunity to spend, you have time to thaw out (you and the credit cards) and really decide if you need that purchase.

Step 2: Rank Your Debt By Interest Rate

Make a list of all your debt with amounts and the interest rate. The highest interest rate should be at the top as this is what you’ll pay off first. Paying off your high interest debt is the key to the Stack Method and paying off debt as fast as possible.

Interest is a powerful weapon and right now the bank or other financial institutions are using it against you. Interest significantly increases the amount you need to pay back and often we’re completely unaware of how much that is.

For example, if you have a $10,000 credit card debt at 20% interest where you pay a minimum payment of $200 a month, you will end up taking 9 years and 8 months to pay off the actual amount of $21,680 including $11,680 in interest!

Step 3: Lower Your Interest Rates

You can often lower your credit card interest rates by doing a balance transfer. This means moving your credit card to another bank and they will lower the interest rate to get your business. Shop around and try to get the lowest interest rate for the longest duration (preferably until it’s paid off completely).

Just make sure you’re reading the terms and conditions carefully so you don’t get stung by the new bank in other ways. Once you’ve done this you can order your list of debt again if things have changed.

Step 4: Create a Strategic Spending Plan

This is where we improve on your financial control from Step 1. Take a piece of paper and write down your income after tax and all the expenses that you have. This will include the minimum payments on all your debt.

Look at your expenses and then rank them in order of importance to you. Look at the items on the bottom of your list and decide whether you’d rather have them or be financially stable. The objective is to create a Strategic Spending Plan where your expenses are lower than your income.

You also decide how much you are willing to spend on each area of your life. You can allocate amounts for rent, groceries, eating out, buying clothes and other activities however realize that once you’ve spent your allocated money there’s no dipping into other areas. It also helps to have a Fun Account that you can spend on what you like and an Emergencies Account in case your car breaks down etc.

You also want to include in your Strategic Spending Plan as extra amount you’re going to use to pay off debt. Can you afford $20 a week? $50? $100? $200 or more? It’s important that you get a realistic number that you can commit to each week without fail and this is your Stack Repayment.

Step 5: Create a Repayment Schedule

The first part of the Stack Method is to cover the minimum payment on every single debt you have. Any time you miss a payment, you incur fees and these add up quickly. This also includes making the minimum payment on the debt with the highest interest rate.

Then for the debt with the highest interest rate (your Target Debt) you’re going to add the Stack Repayment from your Strategic Spending Plan. You apply this Stack Repayment and the minimum payment until that debt is paid off in full.

As your official minimum payment decreases you add that extra amount to your Stack Repayment. So as your minimum repayment drops your Stack Repayment increases equally. This will compound how fast you pay off the Target Debt by adding even more to the repayments you’re making.

Step 6: Reward Your Progress

You want to track your Target Debt so you can see your progress along the way. You can also decide on milestones that you’re going to celebrate and reward yourself on. A reward doesn’t have to cost money but if it does then it comes from your previously allocated Strategic Spending Plan.

This is an important step as it will keep your motivation going when you feel your willpower fading. Just like you’ve trained yourself to brush your teeth and shower, you can train yourself to manage your money. Feel great that you’re now entering the 10-,20% of people who are actually responsible with money.

Step 7: Compound Your Results

Once you pay off your Target Debt you have a huge celebration and congratulate yourself. Then you move the Stack Repayment (which includes the previous minimum payment as well now) to the next debt with the highest interest rate. This becomes the new Target Debt and you are using your Stack Repayment amount plus the minimum payment for the new debt.

This is why the Stack Method is so powerful. As you decrease a debt you actually increase your Stack Repayment amount. This means the second debt will get paid off even faster, the third even faster than that, and so on and so on until you are completely debt free.

Step 8: Be Kind To Yourself

During this process your resolve is going to be tested multiple times. Maybe you’ll have an emergency like your car breaking down or the need to travel for a sick relative. The important thing is to not throw up your hands in despair while going back to your old habits.

Life will test your commitment to your new responsible money attitude and it’s up to you how you respond. When things go wrong (and I guarantee they will) you need to shrug it off and get back on track. Show compassion when you accidentally go over your Strategic Spending Plan and decide to do better next week.

Now You Know How To Pay Off Debt Fast…

The Stack Method is a powerful tool but it’s up to you whether you use it. If you really want results then print out this article immediately and start working through the steps. It’s only by the decision you make right now that you will enjoy a debt free future and live a financially responsible life.

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Did you know you could purchase your Commercial property through a Self-Managed-Superfund?

Investors look to direct property for reliable income

Investing in property is not new to Australian investors. Residential property is something we know and trust and has provided solid returns for many investors. Non-residential property, on the other hand, is less familiar to the average investor, largely because it has been out of reach for smaller investors. But this is changing and it’s well worth looking at the options.

The concept of investing in residential houses and apartments is well understood by most investors and is easily accessed and, in most cases, can be sold in a reasonable timeframe. In Australia, a long run of capital growth in the residential sector has strengthened its appeal, particularly for self managed super funds and individual investors.

Non-residential property such as shopping centres, industrial warehouses and office towers was until recently the sole domain of large super funds and institutional investors.

But commercial property is now becoming more accessible to smaller investors through managed property funds and syndicates. This has broadened the property investment options for individuals and SMSFs and opens up some good opportunities, particularly in the current low interest rate environment.

Why invest in Australian property?

The major categories of commercial direct property include:

These property categories have varying characteristics but there are a number of advantages for investors common to them all, including:

The major attraction of Australian property for investors is the stability of income it provides. Australian commercial property also has a solid track record when compared to the rest of the world, as can be seen in the chart below, which shows the returns from Australian commercial property compared to those from global property over the 10 years to 30 June 2014. While the capital growth component of the income varied, income from rent was very consistent over the 10 years.

Ladies! Forget Waiting for Marriage: 6 Things to Know If You’re Buying a Home on Your Own

May 28, 2015

It used to be the norm that women and men would wait for marriage before buying a home. But now, more singles than ever are taking that big life step alone. And here’s the awesome part: Women have been outpacing men in the real estate market for several years now. Single women in their 20s and 30s represent 14 percent of first-time buyers, compared with 8 percent of single men in that age group, according to realtor.org.

I purchased my first apartment at the ripe age of 24. And then I did it again at 31. And once more at 33. Below, a few pointers that have helped me—and hopefully will help you—secure an affordable mortgage and great home on your own.

first-home

Aim for 25 Percent. While most financial calculators say it’s totally fine to spend 30 percent of your take-home pay on your monthly housing payment, I say be a little more conservative. Remember, being a homeowner requires a lot more spending than renting does. You’ll also have to account for real estate taxes, home insurance, and annual upkeep, which can easily be another 2 to 5 percent of your paycheck. Bulk up your emergency savings account and have at least a six-month cushion in the bank before applying for a mortgage. Mortgage lenders will be impressed to see that.

Clean Up Your Credit. One of the first items lenders will want to analyze is your credit health, especially your credit score. According to FICO, which is the biggest credit score issuer and the one used by over 90 percent of lenders, borrowers with scores of 760 or higher are earning the best rates. To view your score, first check with your bank or credit card issuer—some offer customers a free look. If you find that your number needs some R&R, make sure you’re paying all your bills on time and knock down any outstanding balances on those credit cards. Within a few months you should notice a difference. In the meantime, avoid opening any new credit cards.

Get Your Docs in a Row. This, for me, is the most dreaded part of applying for a mortgage: submitting paperwork. If you have any interest in applying for a mortgage in the near future, do yourself a favor and try collecting all the documents now. This includes the last two to three years’ worth of tax return statements, recent pay stubs, the last 12 months’ worth of bank statements, and a letter from your employer stating that you are gainfully employed. Once you apply for a mortgage, expect that the review process can take anywhere from six weeks to a few months. Hang in there!

A Freelancer? You’ll Need More. If you’re self-employed, prepare for more scrutiny. In addition to all of the above, you’ll probably also be asked for a letter from your accountant or financial adviser stating that buying a home will not hurt your financial stability or your business. Banks sometimes also ask for an additional year of tax returns. They want to see that you’re making money consistently year after year.

The More Your Put Down, the Better. The days of putting down just 5 percent and getting a standard 30-year mortgage are pretty much over. Lenders got burned in the mortgage crisis, so they want borrowers who are willing to have more skin in the game. Prepare to have at least a 15 percent down payment ready to go. Twenty or 25 percent of the purchase price is even better. The more you can pay up front in cash, the more likely you are to qualify for a better interest rate on your mortgage from lenders. It’s one of your best bargaining chips.

Avoid Real Estate Envy. Finally, as you’re house hunting, zero in on places that are financially within reach. A quick measure is to multiply your salary by two or two and a half—that’s about as much as you really want to spend on a home. Your realtor may try to convince you to look at homes a little bit outside your budget, but that can be a slippery slope toward spending far more than you realistically can afford.

Photos: Getty Images

How will the unchanged Cash Rate affect you?

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Reserve Bank of Australia has today decided to leave the official cash rate unchanged at 2.00%.

The Reserve Bank has continued with its wait and see approach after a week of turmoil on financial markets as a result of the Greek financial crisis.

Even though the cash rate has remained unchanged, there are still daily changes in the finance market as a result of increasingly intense competition amongst lenders. So, it’s still wise for us to talk if we haven’t spoken in a while to ensure you’re still in the right finance solution.

Email Info@wealthpluslending.com.au or call 1300 974 974 to make sure you are taking advantage of daily changes in the increasingly competitive mortgage market.

Why Paying Off Your Credit Cards Is Not Enough

Getting your mortgage application together can require quite a bit of financial scrutiny. In order to figure out your serviceability, your potential lender will look deeply into your finances.

It’s a no brainer to take your credit card debts into consideration when applying for a mortgage. But what many people do not realise is that high credit card limits will not bode well for a home loan application.

If you have a high credit limit, you also have a high debt risk in the eyes of your lender. As the logic goes, there is no stopping you from boosting your credit card limit the day after your loan is approved.

“We have to take account of 3% of the total credit card limit, regardless of what the applicant owes,” says Homeloans Ltd BDM Sally Carmichael.

“If they had a $10,000 limit but they only owe $1000, we still have to assess $300 a month and that comes directly out of their liability. It does make quite a difference.”

Even if you haven’t put a cent on your credit card for the past five years, a high credit limit will negatively affect your serviceability. The best thing you can do is lower your credit limit, or cancel that credit account entirely.

“You need to pay out your credit cards and avoid having any other debt,” says Carmichael. “You need to be able to use your full amount of income.”

For those that have to pay off their credit account before dreaming of cancelling their liability, it is imperative that you pay your debt on time, according to your minimum repayments.

The first step towards finding your new home is speaking to an MFAA accredited finance broker to help to sort out your finances.

End of Financial Year Tip: How Small Businesses Can Minimise Tax Liability

End of financial year is a great time to take advantage of business equipment deals, particularly with the threshold for accelerated deductions for small business being raised from $1000 to $20,000. Planning ahead and thinking carefully about your business needs are key to minimising both tax liability and cash flow impact.

As business owners rush to minimise tax liability and equipment suppliers fight for the dollars those businesses are looking to spend before 30 June, end of financial year generally sees commercial equipment heavily discounted.

This year, with the threshold for immediate tax deductions increased from $1000 to $20,000 for businesses with annual turnover of less than $2 million, small businesses have the opportunity to lower their FY 2014/15 liability substantially.

However, there are several caveats.

“The $20,000 expense limit must allow the item to be usable in the business,” explains Aptus Accounting and Advisory Director James Solomons. “So it must include, for example, any transport or installation costs.”

The actual limit also varies slightly depending on whether a company is registered for GST. “If an entity is GST registered, it will earn GST input credits for the GST component of the expense, so the GST-exclusive amount must be below $20,000. If an entity is not registered, the GST-inclusive cost must be below the $20,000 threshold,” Solomons says.

The company tax cuts that will come into effect from 1 July will also impact the actual benefit accrued from the increase in immediately deductible expenses. With the company tax rate falling from 30 to 28.5 per cent, a $20,000 expense before the end of the 2014/15 financial year could represent a $300 higher benefit than one after 1 July 2015. But profit in the 2014/15 financial year also needs to be considered in the decision of when to purchase.

“Obviously, if you are going to take advantage of the $20,000 accelerated write-off, you only get a marginal rate of tax back as a benefit,” Solomons explains. “So if you rush out to buy, but you didn’t have a $20,000 profit in the year, there is no benefit.”

Finally, as with any purchase, actual need must be considered. While a purchase will help to bring down tax payable, it is only sensible if the item is legitimately required!

“If an existing asset is fine, there is no reason to spend the cash now, particularly as the anticipated end of this benefit is 2017,” says Solomons.

Small businesses with annual turnover of less than $2 million can also minimise tax liabilities by prepaying business expenses that will be incurred within the next 12 months, such as rent on premises or other regular, reliable costs.

Savings can also be made by prepaying for goods or services that will increase in price shortly, as long as the price differences are greater than the interest that would be earned on deposits in the time between prepayment and when payment would otherwise be due.

However, there is very little point to decreasing tax liabilities or making savings by making large purchases or prepaying expenses if doing so will cause cash-flow problems, so planning ahead is key.

“If you have significant profit this year, you might do that, but you then can’t access that working capital so you need to be very careful that it really is surplus,” Solomons says. “And consider whether that capital could be put to better use, for example on advertising. What is the opportunity cost of prepaying?”

Solomons compares this consideration to the decision about whether to pay cash for a company car or to buy it with finance; the interest is an extra cost, but it allows the company to hold onto capital that may be put to a use that provides a higher return than the cost of the interest.

There are several ways to finance the purchase of business equipment, including straightforward commercial or equipment loans, finance leases, hire purchase, and a host of function-specific products, for example, for medical or technology equipment, for agribusiness, or to purchase energy-efficient equipment that will reduce the cost of business operation.

  • Commercial/equipment loan: the lender provides full or part finance for the purchase and holds a mortgage over the equipment. The mortgagee owns the equipment and makes repayments over a fixed term.
  • Finance lease: the lender purchases the equipment and owns it, leasing it to the business. At the end of the lease term, the business can hand back the equipment or purchase it, and may be able to refinance to fund the purchase.
  • Hire purchase: similar to a finance lease, except the business owns the equipment after the final payment.

 

For equipment that is continually superseded by newer models, for example computers, finance leases offer a structure that plans for regular upgrades, but care needs to be taken to ensure that the lease period is not longer than the period in which the technology will be superseded, as it is fixed. This structure also offers businesses the ability to procure the equipment they need without impacting their line of credit, as it is not considered a credit liability.

An MFAA Accredited Finance Broker’s expertise in commercial finance can help you work out the best time and the best way to structure equipment purchases.

 

Tips On Getting Ahead With Your Finances – New Financial Year Goals

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For most households July 1 dawns with barely a cross on the calendar. But just as January 1 prompts many of us to take a pulse check on our health and resolve to do better, the new financial year is the perfect time to take stock of our fiscal fitness.

Build a budget

It’s easy to lurch from payday to payday and bill to bill in the hope there’s more money coming in than going out. The best way to manage your money and ensure you are not living beyond your means is to set a budget and stick to it.

Building a true budget requires honesty with yourself about how much you actually spend. Consider all of your costs for an entire month – groceries, bills, loan repayments, clothing, coffees, school fees, entertainment and everything in between – and stack them against what you earn. If you find there is little left over or worse, nothing at all, it’s time to cut costs.

Consider expenses you can control versus those you can’t. Loan repayments, school fees, rent or council rates are fixed. But take-aways, movies or a new pair of heels are all at your discretion – and where you can cut back.

Axing one takeaway coffee from your work day can net you nearly $900 a year, while making your own lunch can save more than $1,800. Pare back on impulse purchases and eating out and your annual savings could soar.

Set some goals

Nothing spurs savings like something to look forward to, such as a holiday or even a deposit on a home. Build your savings goal into your budget and set funds aside as soon as you get paid. Better still, have funds debited from your pay into an account you can’t access easily, such as an online savings account.

Pay down debt

The new financial year is the perfect time to assess debt and make a plan to reduce it, starting with those debts with the highest interest. Consumers often make the mistake of paying extra off their home loan while carrying high-interest debt (up to 20 per cent per annum) on their credit card. You will be far better off financially if you clear the high-interest debt first. A $5,000 credit card debt at 17.5 per cent, for example, attracts $850 in interest a year, while the same amount on a 4 per cent per annum home loan costs just $200 in interest. Credit card providers must now outline to customers how long it will take to pay off their debt if they pay just the monthly minimum. Check out the numbers on your next statement and take steps to pay as much off as you can.

Organise your deductibles

Start the new tax year by knowing what you can deduct and sorting your receipts. Australian income-earners are entitled to minimise their tax so find out what you are allowed to deduct in your line of work and keep a record of all relevant receipts, even if it’s just in an envelope or folder. If unsure of what you can claim, visit ato.gov.au or talk to your accountant.

Get savvy with your super

If you are at a point in life where you have extra disposable income, it may be worth socking more into your super. Talk to your tax advisor or accountant about your individual circumstances and how much extra you’re allowed to contribute. Superannuation is reported after the end of each financial year so keep an eye out for your next statement in coming months to see how your retirement fund is faring.

Make sure you are covered

Insurance may be considered a grudge purchase but it could be the difference between financial ruin and getting back on your feet if the worst happens. Check your home and contents policy to ensure you have enough cover to rebuild and replace your possessions in the event of a total loss. Many home owners make the mistake of just taking out enough building cover to repay their mortgage, but the sum insured should cover the cost of rebuilding your home at today’s prices, including any landscaping and fences. Similarly, contents insurance should be sufficient to cover all of your belongings if you have to buy them again as new. If you have an investment property, make sure you have a specific landlords’ policy to cover claims for loss of rent or tenant damage (see our article about managing unruly renters in this edition of Haven), which are not covered on standard home policies.

Mortgage matters

The new financial year is an ideal time to review your mortgage, regardless of how long you have been with your lender. It never hurts to look around at other institutions and their loans to ensure your mortgage is still structured to suit your circumstances. Even 0.5 per cent shaved from a $250,000 loan will save more than $23,000 over 25 years.

Talk to your mortgage broker about your financial goals and circumstances for this financial year so they have enough information to help you determine the right loan for your situation.

* Tax information: the information in this article does not constitute advice. As taxation legislation is complex, we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.