Episode Details

How good would life be if you were debt free? No mortgage payments, or car loans. No credit cards. Imagine the weight off your shoulders. The financial freedom you would gain. The financial autonomy. Of course many people, probably most people, achieve debt free status over their working life. This episode is not for those who have already achieved this milestone. This episode is for those of you on the journey. For whom debt obligations comprise a significant portion of your regular income. We're going to look at some strategies you might be able to use to get to debt free status quicker. And that acceleration in clearing your debt brings you closer to whatever your financial autonomy goal is. For the purposes of this article, I'm going to assume you, the listener or reader has debt, and debt you'd love to see the back of. Given the title of this post, I'd imagine self-selection should deliver us this outcome. In the modern era, establishing yourself financially without taking on debt is near impossible. The only way I could imagine this happening is either if you were fortunate to be born into a wealthy family who bought you a home, or else you never owned anything, perhaps rented your whole life. Most people I meet will have a mortgage, or if not a mortgage, then at least a loan for a car, with the hope or intention of having a mortgage one day. Very often there are credit cards as well. Sometimes there are debts for whitegoods or a holiday. Debt is not evil. Borrowing to buy your house is likely to have been a smart investment. Over time the home's value rises and you hopefully reduce your debt, so that you build up equity in your home. One day you will pay off the debt entirely and will have a roof over your head without having to find mortgage or rent payments each month – incredibly liberating. Debt to fund consumption on the other hand is not so wise, but who hasn't done it? Financed the brand new car when a 2 or 3 year old vehicle would have been significantly cheaper and still done the job. Or come back from holidays with a credit card bill you couldn't pole vault over. I've been there and I'm assuming you have too. So how can we get these debts under control and fast forward your journey towards financial autonomy? Let's say you decided you needed to lose a few kilo's. What's the first thing you would do? Would you jump on the bathroom scales and weigh yourself? That would seem to be a sensible first step. You need to know your starting point to understand the task ahead – do you need to lose 5 kilograms or 20? You also want to measure progress. You want to know if the actions that you are taking, say increasing your exercise, is paying dividends. So in planning to get your debt under control the first step is to establish where you are now. I'll put in the tool-kit for this episode a table you can fill in to help make sure you don't miss anything. In putting this together, you'll get an accurate picture of how much income you need to generate each month to cover your debt repayments, the different interest rates on each loan, and your total loan balance. It's also helpful when putting together your list of debts, to establish whether they're tax deductable or not. Later, we want to decide which debt to focus on clearing first. Typically you'd focus on the debt with the highest interest rate, but if it were tax deductable, that could alter the thinking, so it's useful to know the tax status of each debt. If you have any debt that is tax deductable, you'll probably already know about it, but to clarify, tax deductable debt arises when the thing you bought with the money you borrowed, generates taxable income. The most common example is an investment property. You borrow to buy the property, and the property then brings in rent. The rent is taxable, and the interest on the debt associated with buying the property is tax deductable. Tax deductab