How to structure finances

[Craig-G]

Hi guys,

I need to have a look at my finances in a bit of detail as I am close to exceeding my risk tolerance and am sure there is a better way of managing things. Would be highly appreciative to draw on the collective views on the forum to see if I can get some advice – brokers and average punters alike just seeking your opinions on how you would address my structure.

The details:

IP
Location: QLD
Purchase price: $303,000
Current value: $375,000
Loan amount: $307,900 (following a refinance)
Interest rate: 7.28%
Loan type: Interest only
Strategy: Buy and hold long term
Financial institution: Police and Nurses Credit Society

PPOR
Location: WA
Purchase Price: $315,000
Current value: $350,000
Loan amount: $295,200
Interest rate: 7.11%
Loan type: Interest only
Line of Credit: $20,000 (essentially all used [i.e. maxed] so a debt)
Strategy: Reno – sell. Expected sale 8 months -2 years
Financial institution: Commonwealth

Credit Cards
Bendigo: $20,000 (essentially all used [i.e. maxed] so a debt) Interest rate – 12.5%
NAB: $8,000 (about $5,000 used so a $3,000 available) Interest rate – 20%
ANZ: $9,000 (essentially all used [i.e. maxed] so a debt) Interest rate – 20%

Car loans and other debts
Nil

Ok so in short I am managing to service the debt at the moment but only just. On the basis that even a 1% change in interest rates would really impact me I am thinking that fixing may be for me. Also not sure if there is a better way of dealing with the credit cards. Also if fixing, I am not sure of the implication on my PPOR if selling within the next 8 months to 2 years.

So the question – if you were in my situation how would you structure things differently.

Thanks in advance.

Craig

 

[mary&mat]

Hi Craig,

Crikey - you gotta get rid of those cards! $37K of bad debt - OMG!

Can you do a PAYG variance where you get your estimated tax return as $'s in your pocket every month instead of having to wait for a tax return? That could help knock those down a bit. Could you roll them all into one of those low interest cards & then put them in your freezer or cut them up til they're paid off?

Can you up the LOC & are you using this to pay all the IP costs?

Fixing will probably involve a percentage higher now so I'm not sure how that will help.

Is there any chance of raising the rents on your IP?

Really hope some of the more savvy money people out here can help

Regards,
M&M

 

[Craig-G]

Thanks M&M - your views are appreciated - THe CC's are causing me a concern.

Just realised I posted in the accounting section so have moved to the more appropriate finance section. Maybe the Mods could delete this post if they are concerned with the double up.

Craig

 

[WillG]

Have you considered taking in a border for some extra cash?

you can balance transfer your credit cards to get a cheap rate for 6 or 12 months. This should help you pay some of the debt and get some breathing space. Get your properties refinanced and consolidate some credit card debt from your ppor loan. The extra $$'s available in your IP will allow you to capitalise some expanses such as insurance, rates, land tax.

while you are doing the above, cut some living expenses and make sure you are paying money off your credit cards every month

 

[srini]

Hi guys,

I need to have a look at my finances in a bit of detail as I am close to exceeding my risk tolerance and am sure there is a better way of managing things. Would be highly appreciative to draw on the collective views on the forum to see if I can get some advice – brokers and average punters alike just seeking your opinions on how you would address my structure.

The details:

IP
Location: QLD
Purchase price: $303,000
Current value: $375,000
Loan amount: $307,900 (following a refinance)
Interest rate: 7.28%
Loan type: Interest only
Strategy: Buy and hold long term
Financial institution: Police and Nurses Credit Society

PPOR
Location: WA
Purchase Price: $315,000
Current value: $350,000
Loan amount: $295,200
Interest rate: 7.11%
Loan type: Interest only
Line of Credit: $20,000 (essentially all used [i.e. maxed] so a debt)
Strategy: Reno – sell. Expected sale 8 months -2 years
Financial institution: Commonwealth

Credit Cards
Bendigo: $20,000 (essentially all used [i.e. maxed] so a debt) Interest rate – 12.5%
NAB: $8,000 (about $5,000 used so a $3,000 available) Interest rate – 20%
ANZ: $9,000 (essentially all used [i.e. maxed] so a debt) Interest rate – 20%

Car loans and other debts
Nil

Ok so in short I am managing to service the debt at the moment but only just. On the basis that even a 1% change in interest rates would really impact me I am thinking that fixing may be for me. Also not sure if there is a better way of dealing with the credit cards. Also if fixing, I am not sure of the implication on my PPOR if selling within the next 8 months to 2 years.

So the question – if you were in my situation how would you structure things differently.

Thanks in advance.

Craig

Could you release some equity from your PPoR? (Mortgage brokers on the forum, correct me if this isn't possible i.e. not enough equity).

You can then draw-down the equity to consolidate your card debt.

This way, you can convert the 20% loans into 7.11% loans leaving you money to pay off the cards quicker?

Also, what is your discretionary spending? What can you do without to pay the bad debt off quicker? Foxtel, phone plans, internet?

 

[agent007]

Hi guys,

I need to have a look at my finances in a bit of detail as I am close to exceeding my risk tolerance and am sure there is a better way of managing things. Would be highly appreciative to draw on the collective views on the forum to see if I can get some advice – brokers and average punters alike just seeking your opinions on how you would address my structure.

The details:

IP
Location: QLD
Purchase price: $303,000
Current value: $375,000
Loan amount: $307,900 (following a refinance)
Interest rate: 7.28%
Loan type: Interest only
Strategy: Buy and hold long term
Financial institution: Police and Nurses Credit Society

PPOR
Location: WA
Purchase Price: $315,000
Current value: $350,000
Loan amount: $295,200
Interest rate: 7.11%
Loan type: Interest only
Line of Credit: $20,000 (essentially all used [i.e. maxed] so a debt)
Strategy: Reno – sell. Expected sale 8 months -2 years
Financial institution: Commonwealth

Credit Cards
Bendigo: $20,000 (essentially all used [i.e. maxed] so a debt) Interest rate – 12.5%
NAB: $8,000 (about $5,000 used so a $3,000 available) Interest rate – 20%
ANZ: $9,000 (essentially all used [i.e. maxed] so a debt) Interest rate – 20%

Car loans and other debts
Nil

Ok so in short I am managing to service the debt at the moment but only just. On the basis that even a 1% change in interest rates would really impact me I am thinking that fixing may be for me. Also not sure if there is a better way of dealing with the credit cards. Also if fixing, I am not sure of the implication on my PPOR if selling within the next 8 months to 2 years.

So the question – if you were in my situation how would you structure things differently.

Thanks in advance.

Craig

Hi Craig, further to others inout and comments, there is a good chapter in the book- The Richest Man of Babylon that explains how to get rid of debt. Basically, do not use credit from now on and dedicate a portion of your earnings to clear those credit cards.

 

[jonmardell]

In my opinion if you are only just managing to service the debt at the moment then you need to do something soon to improve your situation. You have a few options. Firstly you could balance transfer your credit cards you get a lower rate but it is going to be hard to get 20k plus limit credit cards straight of the bat so you would have to get a number of cards to do this. Secondly you could do a payg variation to free up some cash flow and assist getting rid of the credit cards but if you are only just managing at the moment it is going to take you some time. thirdly you could look at refinancing and consolidate as much as that debt possible secured against your properties. The benefits of this will allow you to drop the rates on the cards and making it easier to manage since you will have fewer payments so you will be able to see the payments are actually making a difference. You should also consider fixing part of your mortgage. A trap that you must be aware of and i have seen this many times is when people consolidate debt they just rack it back up again on the cards. Once you pay out the cards, cancel them.

 

[Craig-G]

Thanks for the prompt replies.

Regarding the discretional spending we are pretty responsible at the moment it is just that things have gotten tighter with our first baby on board.

I take the point on board regarding the credit cards. We aren't using these but are essentially only paying interest each month so not getting any movement.

Not sure if I have enough equity for a refinance in either property to assist with cc debt but will ask the question of a broker. If this doesn't work I guess I will look to consolidate into a lower interest rate cc so we can start reducing the $.

What are peoples views on refinancing into a fixed load for say 5 years ion the present market for certainty sake.

Thanks again,

Craig

 

[alexlee]

How was it responsible to rack up that much high interest debt in the first place?

 

[Piston Broke]

Knowing there's a problem is 50% of the solution, so your almost there, but...

If you put lipstick on a pig, it's still a pig.
IMO it's time to cut the BS.
Nothing needs restructuring except your state of mind.
***
Yeah I know "Sure I can if I want to"... but you haven't.
So buckle up, put your head down and save your darn a$$ off for the next 6 mths.
Transfer those CC balances to a citicorp (or similar) low interest (0.5-2.5%) for 3-12mths card, and pay your way.
Yeah we all know there's wife, hubby, kids, xmas, booze...whoopdy doodle do! That's life, on with it.
Sell all your accumulated junk (that's BS it is junk!) on ebay or to friends, and find your local Aldi.
And like most, you probly have enuff clothes for the next 3 yrs.
A baby does'nt need a room full of clothes toys and accessories, and they sure wont remember or thank you for it.
It's ok, you can call me all the names under the sun (and behind the moon),
we all need a kick up the butt once in a while and I was lucky to get plenty though they seemed to think it was a "gentle push".
So get your stuff together and feel the pain before the gain, swear at the PC screen and punch the desk if it makes you feel better, and let us know it went.
I would suggest keep a balance on a diary and update it every time you paydown. No payment is too small, everything counts.
Count every goddam dollar as it's paid off until it's ALL paid off.

PS my last cc statement is from '95-'96, never again

 

[jonmardell]

Craig you do have room to move with debt consolidation but it is going to cost some money with regards to mortgage insurance. I would strongly suggest you take a serious look at your situation soon because if you are only just coping now what if interests go up 2%, what would you have to do to make all the payments?

 

[srini]

New Baby?

Thanks for the prompt replies.

Regarding the discretional spending we are pretty responsible at the moment it is just that things have gotten tighter with our first baby on board.

I take the point on board regarding the credit cards. We aren't using these but are essentially only paying interest each month so not getting any movement.

Not sure if I have enough equity for a refinance in either property to assist with cc debt but will ask the question of a broker. If this doesn't work I guess I will look to consolidate into a lower interest rate cc so we can start reducing the $.

What are peoples views on refinancing into a fixed load for say 5 years ion the present market for certainty sake.

Thanks again,

Craig

Hi Craig,

Congratulations on the baby

We became parents for the first time last year. *Don't* spend money on clothes for babies. We found heaps of brand-new/near new clothes at the salvos, toys from markets etc. Babies are not that expensive - at least not till they are older.

Looks like you are going in the right direction with your approach/questions.

Good luck!

 

[Craig-G]

No concerns with your comments Piston. I like your perspective.

To clarify - not sure about the whole millionaires thread... I am 31 earn 80k, live week to week and the above properties are my only assets so am a long way off millionaire status. Also a baby doesn't cost much but the loss of a partial income does have an effect.

That said...

Yes all excuses I have got my self in this situation and will get myself out. Taking on board all comments and will post an update on the outcome to let everyone know how I have decided to attack the beast and again when the final one is cut up

 

[Piston Broke]

Oops sorry, got carried away...
Thou i forgot to write everytime you see the added interest, clench your fists, grit your teeth growl and exclaim "fokers!".
Kinda like when playing a COD4 game.

We all been there, more than once, it's just the normal progression of things.

 

[Craig-G]

How was it responsible to rack up that much high interest debt in the first place?

hmmmm - valid question. A combination of...travelling and living OS for 2 years purchasing 2 houses with no real savings but borrowing capacity so use credit in place of cash to cover entry costs plus PPOR being a major reno/rebuild so needing to dip in a little

 

[Ed Barton]

No concerns with your comments Piston. I like your perspective.

To clarify - not sure about the whole millionaires thread... I am 31 earn 80k, live week to week and the above properties are my only assets so am a long way off millionaire status. Also a baby doesn't cost much but the loss of a partial income does have an effect.

That said...

Yes all excuses I have got my self in this situation and will get myself out. Taking on board all comments and will post an update on the outcome to let everyone know how I have decided to attack the beast and again when the final one is cut up

how many cars have you got? more than you need i imagine. get rid of one or all, put the money into the CCs and pay the otherwise running costs into the CCs.

 

[Sheryn]

Recognise that you made a mistake and take your medicine now

Craig G

If it was me (and I have not been in your position with CC debt) but did have a baby many moons ago with only $42 in the bank the day before he was born and then later on when we thought we were financially OK had baby no 2 and hubby was retrenched 6 weeks later = STRESSFUL times.

I would sell IP now (check your loan break fees) and pay CGT, clear credit card debts and be left with your PPOR as per below.

PPOR
Location: WA
Purchase Price: $315,000
Current value: $350,000
Loan amount: $295,200
Interest rate: 7.11%
Loan type: Interest only
Line of Credit: $20,000 (essentially all used [i.e. maxed] so a debt)
Strategy: Reno – sell. Expected sale 8 months -2 years
Financial institution: Commonwealth


You had a nice trip overseas for an extended period and now you need to clear that debt. Property is not going up while interest rates are going up, property is going down.

BTW Babies cost more than you think.


Regards
Sheryn


The sooner you cut your losses the sooner you can get back on track again.

Edited to add this article
http://www.couriermail.com.au/money...es-kill-marriage/story-fn3hskur-1225965411712

 

[redwing]

Some great responses above and worth taking heed of, I was thinking debt consolidation also, plus the B***** word

Budget: a mathematical confirmation of your suspicions