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 Post subject: Get out of debt slowly...
PostPosted: Tue Jul 17, 2012 12:46 am 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
I have been a long time lurker, first time poster.

Over the past few years my financial situation has changed a great deal, however, debt has remained a constant.

Some background information, I live in Australia with my partner and two children. Currently we live with my sister who generously has let us take over most of her house for a very reasonable rent.

Two years ago our second child, the boy was born, he suffered from silent reflux which made for a tough start to life for all of us. Three months after his birth, my father fell ill and after a six week stay in ICU we agreed to turn the life support off. A couple of months later I resigned from my job at a tertiary institution where I had worked for nearly 13 years. I was on a good salary but I was very unhappy in my career. Immediately after leaving I started working casually in sales as a fill in until I commenced the IT traineeship I was confident of getting. Unfortunately, just before Christmas I was hospitalised due to a severe back problem and had major surgery. I spent most of the next two months recuperating before I commenced my traineeship.

The upshot of this activity is that we used up the payout I got from my job and were left with debt from the surgery. After struggling to survive on a meager Trainee's wage we moved in with my sister because we couldn't afford to rent the house we were living in. Last year was really tough financially, we were constantly on the back foot. In March of this year I started my new job, while the salary is more than a trainee's, it's well below what I was earning BUT, and this is a big but, I love my job, I really enjoy what I do.

Over the past month we have managed to steady the ship financially and I feel ready to set some goals and be accountable for them. My partner has a slightly different approach to financial matters but is 100% supportive of my plan to get us out of debt. She manages the grocery shopping and the children. I manage my job and out finances. We talk about everything, we have a solid relationship that focusses on keeping our family happy and healthy. Sounds simplistic but it is how we roll.

Our financial situation is below:

DEBTS
Private Health Repayment $350.00 0.00%
Neurosurgeon Bill (back surgery) $1,257.95 0.00%
Fines Payment Unit $414.75 0.00%
Credit Card $3,467.05 12.99%
Credit Card $2,741.85 19.49%
Credit Card $5,503.26 on hold
Car Loan $13,938.01 15.80%
Scooter $750.00 0.00%
Family Loan $1,250.00 0.00%

SAVINGS
E Fund (@17-07-12) $211.40

My primary goal is to pay off the Scooter which we bought from a friend who kindly let us pay it off. The credit card with the highest interest rate is the next priority but I want to be working on them all, hence the title "get out of debt slowly". This is not going to be a quick fix but we will be out of debt by the end of this year.

I will outline our budget in my next post but this post is about getting out of debt slowly without putting my family through too much stress, we have had a tough couple of years, I want us to not stress for a while but get those debts out of our lives at the same time.


Last edited by harbajahn on Wed Aug 08, 2012 11:41 pm, edited 1 time in total.

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 Post subject: Re: Get out of debt slowly...
PostPosted: Tue Jul 17, 2012 12:54 am 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
I realised I said we'd be out of debt by the end of the year, I don't include the car loan in that. But I would really satisfied if we could achieve this goal.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Tue Jul 17, 2012 5:41 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1727
Location: Ottawa, Canada
That car loan is insane. It's killing you. The interest rate is outrageous, especially for such a large balance. It's costing you almost $200/month, just in interest.

Do you really need that car? Can you sell it for enough to pay off the loan? Can you get by with just the scooter? Take the bus? Can you at least downgrade to a reliable used car instead of something so expensive?


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 Post subject: Re: Get out of debt slowly...
PostPosted: Tue Jul 17, 2012 2:27 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
Kombat has a solid point, crazy interest rate for the car loan. Sell, repay and buy a clonker for $2.000-3.000 that will "last" (old but sought after Honda, Toyota or such) the 2-3 years bvefore you are in a reslly solid position financially?


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 Post subject: Re: Get out of debt slowly...
PostPosted: Tue Jul 17, 2012 6:18 pm 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
Firstly, we can't make do with the scooter, we are a family of four. The scooter is to get me to and from work.

The car is a second hand Holden, we bought it at a good price at auction, it had low kms and an excellent service history. I don't know comparative car prices in the US but a car for $3000 would most likely be crap. The car loan interest is slightly high in Australian terms, I have been investigating refinancing the loan at a lower rate but I won't be selling it for a clunker. The car is to transport my children and I won't compromise on their safety.

But I appreciate the input and will direct more attention to refinancing the loan.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Tue Jul 17, 2012 6:50 pm 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
I just looked at loans to refinance the car loan, hopefully, I can cut interest rates by 4 points, that would be significant. If I can convince the bank that we're good for it!!


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 18, 2012 5:17 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1727
Location: Ottawa, Canada
harbajahn wrote:
The car is a second hand Holden, we bought it at a good price at auction, it had low kms and an excellent service history.


For that price, I would certainly hope so!

harbajahn wrote:
I don't know comparative car prices in the US but a car for $3000 would most likely be crap.


It wouldn't impress your friends or stoke your ego, but you can certainly by safe, reliable used cars for $3,000. I don't know why Australia would be any different.

harbajahn wrote:
The car loan interest is slightly high in Australian terms


Is inflation out of control or something? That's a ridiculously high interest rate for a secured loan. Especially considering you listed off several unsecured loans that are at 0% interest! You even have at least one credit card with a lower interest rate - why is the rate so high on the car loan?

harbajahn wrote:
The car is to transport my children and I won't compromise on their safety.


I don't mean to pick on you specifically, but it bothers me when I see people citing "safety" as justification/rationalization for overspending on vehicles. For one thing, this is exactly what the marketers want you to think. They spend a great deal of advertising money convincing you that our roads are one mortal threat after another, and only the safety of 12 airbags, engineered crumple zones, and OnStar* can save you.

Of course, back in 2006, people drove around in perfectly safe Toyota Corollas. The fact that the 2012 model might have even more safety features doesn't mean the 2006 model is suddenly a death trap. It's still perfectly safe. But someone has convinced you that only the newest and shiniest car can keep your family "safe."

Frankly, it's a load of crap.

5 years from now, some new father will be shopping for a car for his family, and he will reject your Holden as not being "safe" enough for his precious family. Yet you've been convinced that that exact same car is "safe" for your current family. What's the difference?

Marketing.

It's your money, spend it how you want. But you asked for input, and aside from the slightly concerning sheer quantity of debts you have, the one standout is the car loan, both in magnitude and interest rate (both of which are unnecessarily high, in my opinion).


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 18, 2012 11:15 am 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
kombat wrote:
I don't mean to pick on you specifically, but it bothers me when I see people citing "safety" as justification/rationalization for overspending on vehicles. For one thing, this is exactly what the marketers want you to think. They spend a great deal of advertising money convincing you that our roads are one mortal threat after another, and only the safety of 12 airbags, engineered crumple zones, and OnStar* can save you.

Of course, back in 2006, people drove around in perfectly safe Toyota Corollas. The fact that the 2012 model might have even more safety features doesn't mean the 2006 model is suddenly a death trap. It's still perfectly safe. But someone has convinced you that only the newest and shiniest car can keep your family "safe."

Frankly, it's a load of crap.


This is true. Working for a carpool I bought a couple of new cars for the pool every year, and happened to buy one each of the three different Toyota Yaris models that has been on the market. I really liked them all, and buying them, picking them up and then driving them I got first hand input on both technical data and actual driving experience. I looked around the body, engine bay and so on. I would say that 95% of essentials did not change on the car between models. New engine with 3-4% better mileage - yes. Start/stop system? Yes. Some mumbo-jumbo letter combination regarding safety (air bag shaped as a banana or whatever) or fuel injection. Again: the essentials is very, very, very similar. What DID change was design.

Changing model every 4-6 years (95% design, 5% essentials) is a way for car manufacturers to comunicate to anxious consumers that it is time to sell their perfectly good car and buy a new one. Take a deep breath, relax. Yes - you can drive a 10 year old car.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 18, 2012 2:35 pm 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1160
Quote:
It wouldn't impress your friends or stoke your ego, but you can certainly by safe, reliable used cars for $3,000. I don't know why Australia would be any different.

While I've never bought a car in Australia, it is a water locked country that has to import everything that it can't produce for itself. Cars included. Which usually means higher prices due to shipping, taxes, & tariffs.

Quote:
Is inflation out of control or something? That's a ridiculously high interest rate for a secured loan. Especially considering you listed off several unsecured loans that are at 0% interest! You even have at least one credit card with a lower interest rate - why is the rate so high on the car loan?

Good points.

Quote:
The car is to transport my children and I won't compromise on their safety.

A 20 year old Volvo is quite safe. And cheap.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 18, 2012 3:38 pm 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
Kombat, your points are all valid and I appreciate them.

Quote:
Is inflation out of control or something? That's a ridiculously high interest rate for a secured loan. Especially considering you listed off several unsecured loans that are at 0% interest! You even have at least one credit card with a lower interest rate - why is the rate so high on the car loan?


The interest rate is high for the car loan, it is high because it is an unsecured loan. Long story but needless to stay that's just how it worked at the time. I don't want to sound like I'm defending the indefensible, I'm just getting my head around the next step.

The other unsecured loans with 0% are not with financial institutions but with family, hence the zero %.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 18, 2012 4:38 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
Tightwad wrote:
A 20 year old Volvo is quite safe. And cheap.

Living in the country of Volvos, I concur. There are tens (if not hundreds) of thousands of 240/245, 740/745 and 940/945 ("real" rear wheel drive Volvos) rolling in Sweden. Cheap parts keep them running and yes - they are fairly safe even 20 years old.

Guinnes world record for long running car is a 1966 Volvo P1800 (with original B18 engine!) wich has 2,6 million miles (4,16 million kilometers) on it.

Volvo 240/245 initially had the B20 engine, wich is very similar to B18. These cars have tons of space, decent comfort and parts are cheap and easy to come by. On the negative is mileage. If you can find one rust free (dry parts of US/Australia) wich has been serviced allright, it might run 2-3 million miles.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 18, 2012 9:07 pm 

Joined: Mon Aug 08, 2011 9:13 pm
Posts: 178
Location: Brisbane, Australia
For the non-Aussies, take a squiz at this http://www.carsales.com.au/ to gain an idea of car costs in Australia and check the price your own car is worth second hand here.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Thu Jul 19, 2012 8:57 pm 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
Geoff, thanks, I was thinking of finding some way to show the comparison! Cheers.


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 25, 2012 12:11 am 

Joined: Mon Jul 16, 2012 11:49 pm
Posts: 20
Good news, I got my tax return, so I'm calculating which debts will be smacked in the face with a payment.

I have to pay the outstanding amount to our Health Provider to get us up to date, so that's $350 from the total.

I have to allocate some funds to new tyres for the car. The total for that most likely will land around the $500 mark if all four need replacing. I'm going to shop around on the weekend for tyre prices.

If all four need to be replaced, I may have to allocate the remaining tax funds to that.

I guess that one small debt down and one potential dent (replacing the tyres) in the emergency fund avoided.

Once I've allocated the funds I'll update the spreadsheet. It's a good feeling!!


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 Post subject: Re: Get out of debt slowly...
PostPosted: Wed Jul 25, 2012 3:53 pm 

Joined: Mon Aug 08, 2011 9:13 pm
Posts: 178
Location: Brisbane, Australia
Good to hear you got something back.

Doing our Tax on Monday night. Will be interesting.


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