Another Newbie seeking options

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From: Annisia Rendalls


I am looking for as many options as I can
at the moment on my current financial /
property situation...any advice would save
some sleepless nights!!
Situation: I have a property (first home) in
Brisbane which I have lived in for 2 years.
I have recently had it valued for $300,000
plus. (lucky for me!) My partner has a
HECS, Austudy & Mastercard debt which
has made a substantial impact on our
ability to make more headway on the loan
(we are both working). I have a line of
credit with citibank & was considering
extending this loan to get rid of the
mastercard debt....however, I would have
gained well over $100,000 in profit if I
sold the house. Thus giving me a much
lower borrowing amount for another
property & the ability to pay the
outstanding debt... and also a great start
to an investment portfolio. I am trying to
educate myself about property investment
but haven't got too far as yet & I feel I need
to make a decision in the very near future
as the mastercard is making life bloody
uncomfortable! I love my home & have
always thought it would be a fantastic
investment property to hang on to when
we are ready to move on.....
Maybe the time to move on has come
sooner than I thought??

HELP!! Any thought or suggestions?
Annisia :)
 
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Reply: 1
From: Manny B


Hi Annisia,

I'm no expert in this area (others in the forum are excellent when it comes to loans, ie. Rolf or Geoff), but what I would do in your shoes would be to consolidate all my loans into the one. That may involve re-financing your loan on your home & get rid of all BAD debts, ie. pay off the Master Card, pay off HECS up-front (HECS used to offer a 15% discount when you pay up-front) & DON'T SELL your house... you will see by paying off the bad high interest charging debts, it will lead you to the road of recovery & when ready you can utilise any additional equity you have in your place to purchase your first IP...

Good luck with all of this...

Cheers,

Manny.
 
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Reply: 2
From: Duncan M




How much are the HECS, Austudy and Mastercard Debts?

Duncan.

-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: None
Subject: Another Newbie seeking options


From: "Annisia Rendalls" <annisia@coroneo.com.au>

I am looking for as many options as I can
at the moment on my current financial /
property situation...any advice would save
some sleepless nights!!
Situation: I have a property (first home) in
Brisbane which I have lived in for 2 years.
I have recently had it valued for $300,000
plus. (lucky for me!) My partner has a
HECS, Austudy & Mastercard debt which
has made a substantial impact on our
ability to make more headway on the loan
(we are both working). I have a line of
credit with citibank & was considering
extending this loan to get rid of the
mastercard debt....however, I would have
gained well over $100,000 in profit if I
sold the house. Thus giving me a much
lower borrowing amount for another
property & the ability to pay the
outstanding debt... and also a great start
to an investment portfolio. I am trying to
educate myself about property investment
but haven't got too far as yet & I feel I need
to make a decision in the very near future
as the mastercard is making life bloody
uncomfortable! I love my home & have
always thought it would be a fantastic
investment property to hang on to when
we are ready to move on.....
Maybe the time to move on has come
sooner than I thought??

HELP!! Any thought or suggestions?
Annisia :)



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Reply: 2.1
From: Annisia Rendalls


HECS = $14,500
Austudy = $21,000
Mastercard =$9,000

If we pay HECS & Austudy early....

HECS = $12,500
Austudy = $18,000
Mastercard =$9,000

HECS at the moment is taken at 6% of
his annual income (40,000) and the
austudy accumulates interest in line with
CPI.... I don't feel as overly concerned with
HECS as with the others.
What do you reckon??
 
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Reply: 2.1.1
From: Manny B


Howdy again,

As you said:

>HECS = $14,500
>Austudy = $21,000
>Mastercard =$9,000

>If we pay HECS & Austudy early....

>HECS = $12,500
>Austudy = $18,000
>Mastercard =$9,000

if you paid your HECS debt & Austudy debt off around Tax time (I paid mine a while ago at the end of June & saved money upfront & got a good tax return), you will get the discount of $5,000 up-front (which isn't bad in books) & in July when you get your taxes done you will get a healthy return, as you have paid extra TAX (PAYG) for Austudy & HECS... Note: you will pay interest on all your HECS/Austudy minus the $5,000 saving, which you should be in front...

Also, the Mastercard interest rates are higher than your home loan rates, so again you will get a good saving there...

Step 2, once you consolidate these debts & start saving, I would look at reducing the Mastercard credit limit (or cut it up) to not allow yourself to get into so much debt...

That is what I would do in your shoes, but others may have better alternatives (many may not agree with my opinion)... but wish you luck on which ever path/avenue you take...

Note: with the consolidated debt, you can then re-visit your future investment strategy & possibly look at using equity from your home to purchase an IP (or two)...

Manny.
 
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Reply: 2.1.2
From: Duncan M



I dont think its as bad as you think. You have some nasty debt, but its not
insubstantial either. Can I suggest you do a few things:

1. Read "The Best of Cheapskate Monthly" by Mary Hunt. St James Press,
available from Borders and other large bookstores.
2. Read "The Richest Man in Babylon" by George Clason, available from just
about every bookstore.

These two books will cement your ideas about bad debt and give you
strategies for getting rid of it, selling your house to expunge these debts
is the worst possible mistake you could make.

Some of the key points in The Cheapskate book are:

1. Take a very hard and long look where your money goes, what its spent on
and applying yourself to spending less and paying more debt off in a
structured fashion.

2. Establishing an understanding that your financial life can be planned,
make allowances for irregular bills like Car Maintenance, Registration, etc
etc.. Thru sub accounts of a budgeting account (I actually use around 20
Commonwealth Bank Strealime Accounts)..

3. Paying debt off in a structured manner, a great methodology is described
in the book..

On your side is that your HECS and Austudy wont be factored by the banks in
their serviceability calculations.. Definitely draw down on your house to
pay the Mastercard Debt if you can, then cancel the card or reset the credit
limit at $500, I did see some research recently that suggested 90% of people
who consolidate debts max the credit cards out again within 3 months.. that
would the worst thing you could do..

Duncan











-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: None
Subject: RE: Another Newbie seeking options


From: "Annisia Rendalls" <annisia@coroneo.com.au>

HECS = $14,500
Austudy = $21,000
Mastercard =$9,000

If we pay HECS & Austudy early....

HECS = $12,500
Austudy = $18,000
Mastercard =$9,000

HECS at the moment is taken at 6% of
his annual income (40,000) and the
austudy accumulates interest in line with
CPI.... I don't feel as overly concerned with
HECS as with the others.
What do you reckon??



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Reply: 2.1.2.1
From: Owen .


Also check out the John Burley method of debt reduction. I've attached a copy of it so have a good read and see if you can apply it to your situation. When you work it out you should be able to get a pretty firm date on when your debt will be under control and you can plan around.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 3
From: Nigel W


Ditto what everyone else said BUT, I make the following observation and recommendation:

1) Altho this assumption may be wrong, it would seem that your partner may have poor spending habits. You need to work together to develop better budgeting (forward living as Michael Pryor calls it) skills AND the self discipline to stick to a reasonable savings and investing program. In fact self-discipline is critical to the whole investing thing - if you can't delay your gratification you'll have a hard timing getting and STAYING out of bad debt.

2) If you can't get 1) right then consolidating and getting a line of credit might be a slippery slope into a spiral of debt. If you can't trust yourselves to stick to the plan, the Burley approach might be a safer one.

Good luck with it!
 
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