She's On The Money - How To Pay Off Debt On a Low Income

Starting point is 00:00:00 She's on the money. She's on the money. My name's Natasha Bambler. I'm a proud First Nations woman and I'm here to acknowledge country. Hello beautiful friends. We gather on the lands of the Aboriginal people. We thank, acknowledge and respect the Aboriginal people's land that we're gathering on today. Take pleasure in all the land and respect all that you see.

Starting point is 00:00:25 She's on the Money podcast. Acknowledge is culture, country, community and connections, bringing you the tools, knowledge and resources for you to thrive. Hello, my friends and welcome to She's on the Money, the podcast where we discuss all of the issues concerning your wealth goals so that you can feel more in control of your financial future, especially when it feels like that future is running away from you. I'm Victoria Devine and you are joining me for a very special solo episode dedicated to debt, specifically how to pay it down when you're earning a low income. Because on this podcast, we often discuss

Starting point is 00:00:57 debt reduction in a pretty methodical way. Earn more, get a side hustle, then consolidate, it's snowball or avalanche, right? Well, I still stand by this advice because it's already working for so many of our listeners. For some of you, it's just adding insult to injury. My friend, you are doing the best that you can and you are exhausted. You're barely scraping by and some of these options are really not that viable for you. I mean, what if rising living costs are the whole reason why you're in debt in the first place? So I wanted to dedicate an entire episode to debt reduction, not by growing your earnings,

Starting point is 00:01:33 but by applying some savvy systems and a little behavioral psychology to help you along the way at any income level. This episode is dedicated to our younger selves and anyone who feels overwhelmed, ashamed or completely snowed under by debt. We see you, we hear you, and we're here to tell you unclench your jaw, my friend. By the end of this deep dive, you'll hear some creative ways to pay down your debt, working with the income you already have, as well as some of the reasons why it's so damn hard. After the break, we'll be sharing some concerning, but common stats around just how much debt young Australians are actually in right now. Relatable, don't go anywhere. So if you haven't already heard the episode about my own personal debt hell, please really hear me when I say,

Starting point is 00:02:25 I know exactly what you are going through. I've had that exact same sick to my stomach feeling about what balance is owing the kind where you're checking your banking apps like an absolute madwoman and spiraling every single time a statement arrives in the mail, or, like me, at the very beginning of my debt journey, just burying my head in the sand and not knowing exactly what I owe because opening those apps was honestly too much. And while it might feel like everyone else has their entire life sorted and maintains a totally normal relationship with money, I'm here to say that debt, particularly secret debt, is way more common than you think. Let me bring up some stats for you. So, according to Canstar, more than a third of Australians, so 35% are carrying personal debt,

Starting point is 00:03:10 with the average amount sitting at approximately $15,179 per person, excluding home loans. And it gets a little bit more confronting if you break it down by generation, with younger groups carrying the highest levels of debt. But this should come as no surprise when you think about how quickly the cost of living, health care and education has increased compared to wages in the last generation or so. For a really quick snapshot, Gen Z averages about $23,888 in debt and millennials about $18,135, while the baby boomers average much less at around $7,173. And while Cozy Lives definitely has something to do with it, so does the shifting landscape around credit cards, personal loans, or buy it now pay later

Starting point is 00:03:58 arrangements. So my friend, what else is going on? Well, on average, Gen Z are earning under $68,000 a year in median gross annual income. Let's think about it this way. If your take-home pay is roughly $1,200 a week, but things like rent account for more than half of that with the current national medium rent at $705 a week, you can very quickly understand how a really young person might get into debt or anyone at all. So while you might initially have thought, or this issue actually only affects a really certain type of person. There are so many complex flactors which play into why these figures actually exist. Now, I'm going to reel off a few stats that apply to women,

Starting point is 00:04:40 but these figures only become more pronounced if you are also an indigenous woman, a person of colour, if you are same-sex attracted, disabled or experienced chronic illness, or if you're non-binary. Based on the WGEA report, we know that women over-index across low-wage sectors, industries that are already paid less than others, including healthcare, education, hospitality and retail. Additionally, career wages across the board make it challenging for women to afford essential living expenses, especially if you are single. This only becomes more challenging if you're a parent or you have dependents. Of course, the gender pay gap is a

Starting point is 00:05:20 contributing factor and starts right off the bat with early career wages taking a knock right after women graduate from uni. Don't believe me? Well, according to a survey from the ANU's Social Research Centre, female undergraduates are starting their professional careers on a medium full-time annual salary of $75,300, compared to their male colleagues on 79 grand. That's a 4.7% gap with the same credentials right out the gate.

Starting point is 00:05:49 Systemic and industry-specific gender pay gaps continue to challenge women into their 20s and 30s, especially if you choose to start a family. Women over-index for casual and part-time roles, usually to facilitate the balance, often returning to work at a reduced rate to compensate. And some of you might be here and think, well, V, are you suggesting that women simply don't work as hard as others or for as long as other employees? Quite the contrary, actually. According to the WGEA, we still over-index when it comes to care responsibilities, doing 1.25 hours, more unpaid childcare a day than male parents and over nine hours a week more unpaid work and

Starting point is 00:06:32 care than men. All of this to say that there are a bunch of different reasons why you might be struggling financially and that's before we've even tried to tackle mindset. It's no wonder you're thinking, V, I'm doing literally everything that I can and I still cannot catch a damn break. Because all of this might actually be the reason why you can't earn more right now. And if the systemic and institutional factors weren't enough, there are a whole bunch of other dynamics that are currently at play. This is the fun behavioral psychology part, all right? And I did study this and could talk about it literally forever, but I'll keep it really focused for you. I'm just going to say it. There's a really weird shame that we carry about what we earn, especially if we're earning

Starting point is 00:07:14 much less than our peers. But we already know this because we've felt it, yeah? And while it's literally tied to our employers, companies, margins and the marketplace as a whole. For some reason, we tend to internalise a low income as some kind of personal failure. I'm here to remind you that what you earn is not and will never be a reflection of what you are worth as a person. While it is really wonderful to be booked and busy, this is just one factor of our whole identity. It's not our identity full stop. And that's part of your personal money story. So my friend, if you'd like to learn more about rewriting yours, please check out our money mindset playlists and content. Secondly, a recent study found that if you're on a lower income, you're more likely to make more high-stakes financial

Starting point is 00:08:02 decisions more often with less margin for error. This level of ongoing financial stress reduces your decision-making capacity, so some might think you're lazy or simply making bad money decisions when really a perfect storm of scarcity and mental load all add to the fatigue. It's catch-22, You're stressed because of money and money decisions make you stressed. Finally, if you're earning a low income, chances are you haven't been able to build up an emergency fund yet, something that we always suggest having before even starting to pay off your debt. But the whole thing with earning a low income is that every emergency becomes your new debt. Because you don't have a buffer, even the slightest price hike or unexpected cost,

Starting point is 00:08:45 can tip you into an emergency mindset. it. Cognitively speaking, between the mental load, weird shame around earning and a lack of a buffer, there's a lot more going on around your debt than you might actually realize. And this doesn't even take into account the external factors that are currently working against you. So if you're facing something like credit card or buy now pay later debt, you might be really familiar with the concept of a minimum repayment. Rather than paying off the full amount, the lender only asks you for a minimum amount each month, which might be like 2% of your overall balance, right? And while that might be all you can afford on a lower income, minimum repayments aren't actually your friend. They are

Starting point is 00:09:27 designed to maximise interest for that financial institution over time. For example, if you're making the minimum repayments on a $5,000 debt at 2% per month with an interest rate of 20.99% per year, it would take you over 20 years to pay it off, costing you almost $15,000. $1,000.000. in the long run with almost $10,000 going to interest alone. And while many of the debt reduction methods out there, including our own, encourage minimum repayments, it's part of a bigger picture. Okay, so with all of the behavioral and dark design stuff in mind,

Starting point is 00:10:01 how can we actually take charge of a situation that otherwise feels completely out of our control? I'm going to share some strategies that you can apply, even with constrained earnings after the break. Welcome back, my friend. All right now for the, I would say juicy part, all of the debt dissolving tips starting off with an audit. Now, this might feel really confronting, but I promise you and I hold your hand when I say this, it is totally necessary. And it's kind of a B side to our Earned Spend Owner No checklist.

Starting point is 00:10:36 Basically, you want to do a monthly spend audit. I don't want you to judge yourself, but I want you to see if you can find any surplus money in there. I'm talking 20 to 50 bucks a week that you could cut from your current spend without causing too much friction. Some examples might include pairing back on subscriptions and gym memberships or searching for a little money win like interest earnings on existing accounts and renegotiating your phone bill. And if you're anything like me, you love a highlighter moment. You love stationary. So grab the last 30 days of your transactions and mark anything that didn't make you genuinely happy.

Starting point is 00:11:12 not just money you spent on fun stuff, but moments where you spent money without remembering that purchase. All right, this next one is called the $5 a day rule. And please don't worry, I'm not asking you to survive on $5 a day. Rather, can you put away $5 a day for an additional debt repayment? I get it. It doesn't feel like much, but it adds up to an extra $1,000 $125 a year, which on a $5,000 debt covers almost half of the principal payment in year one alone, not including any interest. To do this, you might cut back on some takeaway coffees, adjust your travel expenses and include maybe more walking in your routine.

Starting point is 00:11:51 You might shop a little differently to save $5 bucks on your meals or your groceries or aim to sell one thing each week on Facebook marketplace to get the ball rolling. If you're stuck for ideas, we have a brilliant broke tips section on our Facebook group, which is always packed with super creative ways to save. Or you might switch on roundups in your banking app, directing the difference to your debt. Basically, this is where the remaining cost of every transaction is rounded up to the nearest dollar or $5 and it goes into a savings account or towards your debt. This next tip I have for you is very similar to our traditional debt reduction methods

Starting point is 00:12:26 and it's about triaging or prioritising which debt or debts you pay off first. If you have multiple balances to pay off, always begin by paying off the debt with the highest interest rate first. Not only do they hurt the most in terms of budget, usually their interest rates are differential and shift as you pay them down so they hurt less the more often that you pay them. Additionally, things like your hex or help debt can be deprioritized because they are indexed to CPI and not interest. They don't affect your credit eligibility and rely on you earning above a certain threshold for

Starting point is 00:12:59 it to kick in. because you're on a lower income, you might want to let this one sit at the bottom of your list. This next tip is all about negotiating and if you need help with this, we have a few scripts on our website and on our blog to help you negotiate a cheaper rate on things like your utilities fees or your phone bill, so please go and check them out. Honestly, you can often talk your way to a more affordable credit interest rate or even see if your supplier is willing to offer you any hardship arrangements. The worst thing that they can say is no, and you can move on to the next. But if it is available to you, my friend, it is there for a reason and we should be using it. Look, I've said this in the past,

Starting point is 00:13:37 but please stop thinking that you have to like qualify or you need things to be particularly bad for you to call up the National Debt Helpline, which is 1-800-007-007. They offer free and reputable financial counseling services. Again, another service that is designed for you to use. Another thing, my friend, if you come across any unexpected money, like a tax return, maybe some tips or birthday gifts or overtime, you could direct at least 70% of that towards your debt and the rest towards rewarding yourself. I feel like so many times when we are in a situation of financial hardship, when we come across unexpected money, we literally go, well, I deserve this and fritter away on something that makes us feel good in the moment instead of helping future us become more

Starting point is 00:14:26 financially confident. Think of it this way. It was actually never your money to begin with. So even 30% is huge and with 70% of it going towards debt reduction, you're investing in your own financial well-being too. Now, how often have we dropped way too much money at dinner or on a social occasion or simply because of peer pressure or situational cues? The people we spend time with often affect our spending habits in really unexpected ways. This tip is about being smart about who you surround yourself with and how you socialize. Is there a friend or maybe even two you could confide in about your financial goals who maybe can help support you in group settings so that you stop self-sabotaging your debt reduction or so that you don't feel like you need to miss out on

Starting point is 00:15:12 social occasions simply because of your budget? Can you join in on maybe only the social components that don't involve spending heaps? Can you actively do activities that help you raise money? Like maybe together with your friends you could hold a market stall or have an afternoon together where you finally list all of those things that you said you were going to list on Facebook marketplace. And lastly, and this is a really important one, can you please shift your mindset? We understand that behavioural change is the most powerful when it's grounded in our own identity, not simple motivation. So can you shift from being someone with debt to someone who makes progress on their debt every week?

Starting point is 00:15:53 Can you write this down as a daily reminder of exactly who you are? If you're up for it, maybe it's something you can repeat literally physically to yourself every day until you feel it. A few of the girls on the She's on the Money team are really big fans of positive affirmations, as am I. So if that's your thing, my friend, we are screaming it into the mirror. I know it might feel weird at first. It really did for me too. But change starts up here in the mind. often before we experience it in a physical sense. Now, it would be absolutely remiss of me to give you these strategies then run away. So I'm going to give you some hypothetical situations inspired by real ones within our community.

Starting point is 00:16:36 Each includes a kind of debt and amount, earnings and strategies applied to pay down that debt. Let's start with the first one. Let's say you take home 500 bucks a week and have $8,000 worth of credit card debt. If you use the surplus audit strategy alone, finding an extra 50 bucks a month within your current spend and putting it towards repayments, you could shave 10 to 18 years off your repayment schedule and thousands of dollars in interest depending on your rate and lender conditions. Okay, my friend, let's do another one. This time for personal loans.

Starting point is 00:17:10 Let's say your take-home pay is $630 per week and you've accrued 15 grand worth of debt, taking out a personal loan. Based on a three-year term and an interest rate of about 13.9%, you could have the debt paid down in 18 to 24 months if you approach the lender and negotiate a lower minimum repayment and complete a surplus audit and contribute an extra $75 a week. That extra contribution would result in you paying almost $1,500 less interest over the duration of your loan and be debt-free 15 months faster than minimum repayments alone. All right, let's talk to the Buy Now Pay Later crowd. Let's say your take-home earnings are $600 a week and you have $3,000 worth of debt, except it's across multiple different platforms. The issue here is that they usually start with an interest-free period, but revert to an average of 25% interest per annum on the unpaid balance once your promotional period is over. While 40 bucks here and there might not seem like much, that extra $750 a year on $3,000, is

Starting point is 00:18:15 if left unchecked is diabolical. That and buy now pay later platforms often attract late payment fees, and you may need to negotiate with their respective collection partners to sort out a payment plan if they haven't offered you that option already. If you prioritise the smallest buy now pay later balance first, paying the monthly minimum of $62.50 per month, which, to do the maths really quickly, 25% per annum interest rate on three grand is about $750. Divide that by 12 months, you've got $62.50. And you've used the surplus audit to contribute an extra $25 per week, which is about $100 a month to this debt.

Starting point is 00:18:56 You would pay it off in roughly 18 months instead of three to four years at the minimum repayment alone. Of course, each lender and platform has their own fees, including early exit and ongoing account fees. So please, please, please do your own research and have to be. a play with the various strategies to see what might actually work best for you. We've got methods to help you get out of buy now pay later arrangements specifically on the She's on the Money Resources page on our website. And these methods don't just apply to those of you who are earning a

Starting point is 00:19:26 lower income. You can adjust these to work for higher earnings if that applies for you. It just goes to show how achievable and life-changing these little adjustments can actually be. My friend, if you take anything from this episode, I really hope it's this, that getting out of debt is not simply a rich person's game. While it might be slower, harder and require more discipline and a lot of creativity, it is entirely possible. And our community is proof of this every single day. Thank you so much for joining me for this, I guess, debt-laden deep dive. I hope that you feel a little bit more empowered and maybe even a little bit excited to get on top of your balance. Remember, we have an entire playlist dedicated to helping you pay down debt. And if you need to,

Starting point is 00:20:11 please don't hesitate to reach out to our friends at the National Debt Helpline for extra support. I'll make sure all of their details are in the show notes. If you found this episode helpful, please leave us a review and make sure that you are subscribed so that you never miss an episode. Take care and my friends, we will catch you next time. The advice shared on She's on the Money is general in nature and does not consider your individual circumstances. She's on the Money exists purely for educational purposes and should not be relied upon to make an investment. or financial decision. If you do choose to buy a financial product,

Starting point is 00:20:47 read the PDS, TMD, and obtain appropriate financial advice tailored towards your needs. Victoria Devine and She's on the Money are authorised representatives of Money Sherper PtyYLTD, ABN 321-649-27708 AFSL 451-289.

She's On The Money - How To Pay Off Debt On a Low Income

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