Get out of debt first or invest?

I would tend to prefer the opposite – depending on your exact situation.

Cheers,

Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

Presumably the debts you talk about are credit cards, pers. loans etc. If so, I also would be trying to get rid of these before undertaking any investments. Don’t know how good those loan products are that consolidated all these debts into one repayment?? Maybe an option. Eric

My partner and I are saving towards our deposit for our first house (we are currently renting in Hobart $180p/w)

So far we have saved up about 7000 (we went travelling to England Italy and Hong Kong in February which set us back a couple of thousand)

I think my partner only has a few hundred dollars debt in a credit card. I however owe about 25k in 2 loans and 2 cards.

The first card is in its interest free period , and I’m making payments to have it payed off before the interest free period expires (else it goes to something like 27% interest) I owe 900 on this card.

The other card is on 11% interest (paid for the nice gaming pc I’m writing this on) and I’m paying minimum payments on this card for the time being. This balance is $2850

The first loan is at $5200 13.95%, and is a consolidation of previous cards. Its paid at 200.30 a month. Remaining term at this rate is 33 months.

The last loan is at $16596 10.5%. it payed for my nice Italian motorbike (a Moto Guzzi V11 Le Mans). Its paid at $439 a month and I still have 46 months to go on this loan.

Even though I have all this debt, after my last big purchase (the computer parts for this pc) I have cut back on spending, and am saving approximatly between $500 and $800 a month into ING Direct (5.4%)

Once my partner and I have got a house deposit secured, then I intend to concentrate on the loan at 13.95%, then the card at 11% and then finally into the bike loan at 10.5.

Once that is done I intend to save towards another deposit for my first investment property.

So I have a fair bit of debt, but I dont think it will stop me from getting into better debt… ie debt on an appreciating asset. And I intend to start investing after that as soon as my personal debt it cleared. Does this seem like the right approach?

I agree with Dazzling.

I now have some time to expand on my earlier post.

If you wish to invest in property you will get the best possible finance deal if you have a 20% deposit saved over a 3-6 month period.

To commit all of your income to paying out debt is good but what then?

You sit back happy that you are finished the debt and then either have to save for 6 months or take a less optimum package.

One idea might be to make inroads on the debts whilst also establishing a deposit. If you choose the pos cashflow road you will then have additional funds available to pay down the debt each week.

Now for those who want to pay down debt let me suggest an idea.

Pay the minimum off every debt. Except the smallest. Pay all you have into it. Soon it will be gone. Good for morale and encouraging. Direct all the extra into the next smallest debt etc. Soon you will only have that last big one left with all of the available income left to kill it. From anecdotal evidence this really speeds up the whole process and also gives the most feeling of progress!

But as Dazzling says – unless you change your behaviour you will soon be back to where you started. Remember that “For things to change, first you must change”

All the best,

Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

voig,

I reckon keep the toys that make you happy, keep paying down the debts for them- that’ll keep you disciplined; and keep doing the savings that make you keep your feet on the ground.

Sell off the toys when and if you have to- if it all becomes overwhelming. 25k debt is not an extraordinary amount- it’s really about the cost of an average small car- nothing to really wreck yourselves over.

It’s obvious that the toys you have bought are diminishing in value as you use them, but what price fun? if you’re still saving for appreciating assets, you may as well enjoy time in the interim.

And don’t kill me, all you misers- not all of us want to spend every cent on appreciating assets and have no fun [specs]

kay henry

Shawn- yes, indeedy! I reckon it’s still got a few more hundred k’s left it in yet- it’s only on 420,000 now- it’s still got the grunt (I think the orange colour makes it go longer). This is how i look when I’m driving it (it has a steering problem):

[thumbsupanim]

kay henry

For our first house (to live in ourselves) we would be looking for a house around 150,000 to 180,000 around Hobart. Because of the Moto Guzzi there must be a lock up garage. Because my partner has in the past bought and disposed of a property, the paper work would have to be all in my name to qualify for first home owner’s grant. Based on the debts I mentioned above, and a yearly income of about 50k gross, a local mob has said that approx 180k was the most that home lenders insurance would allow.

what is the problem with paying for mortgage insurance? For the price of mortgage insurance (approximately 1% of the property based on a 10% deposit of a house $150K) you have $15000 plus all your legals and other costs to enter a property, why wouldn’t you pay approx $1500 to save you time in saving the remaining $15000 for a 20% deposit.) You could buy a place with $22000 – $24000 including all costs with a 10% deposit instead of neededing $36000 – $38000 with a 20% deposit.

Ok it is not ideal but if there is a property you have found and your due diligence shows you can make money from it why wait another 10, 15, 24 months to save the rest? That deal would be gone, sure you will probably find another but it could be up to 2 years of investing you will never get back.

If my serviceability lets me, I get loans for a property in my price range with a 10% deposit. otherwise it would take me forever to get serious in this game. Sure at some point you will hit a will and need a 20% deposit – but until then you may have 2/3/4/5 properties with potential growth and cashflow to help you get that 20% deposit.
OSS

spend less than you earn (golden rule)AND PAY YOURSELF FIRST then all your bills debts later. this is delayed gratification and over time the compound effect is enormous… buy things that appreciate not depreciate in value and askyourself is it a want or need before you buy.. cheer John Rizqallah