She's On The Money - Summer Starter Series: Managing Debt

Starting point is 00:00:00 My name is Natasha Bamblett, 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 she's on the money podcast acknowledges culture country community and connections bringing you the tools knowledge and resources for you to thrive she's on the money she's on the money Hello and welcome to She's On The Money, the podcast that's here to help you get your finances on track this year. Welcome back to episode two of our summer series. It has been

Starting point is 00:01:14 so fun. This series exists for, honestly, a very simple reason. This time of year, motivation is really high and a lot of you are ready to actually do something with your money. So instead of throwing brand new concepts at you, we're going back to the foundations, the episodes that help you get set up properly, no matter where you're starting from. I'm going to pull some of the most important, most practical episodes from the vault and put them right here on the feed so that you can move through them in order and build momentum without feeling overwhelmed. Each episode in this series builds on the last.

Starting point is 00:01:46 So if this is the very first episode you're joining us for, I would love it if you could actually press stop right now, head to episode one of the summer series, which I've linked in the show notes for you and start there. That episode is all about getting your budget sorted and it really is the foundation for everything we are going to be talking about today. Once you know what's coming in, what's going out, what you own and what you owe, you're in a much stronger position to actually make a plan. And today is exactly about that, turning that clarity into action. In this episode, you and I were diving into debt, how to decide what to tackle first, how to choose a strategy that actually works for

Starting point is 00:02:23 your personality, and how to get out of that overwhelmed, head in the sand feeling that debt can absolutely create for us. This is another one from the vault from the very early days of the podcast, but the advice is just as relevant now as it was then, my friend. Debt, unfortunately, hasn't changed. The way out hasn't changed either. What this will change though, is how confident you feel when you're tackling it. So if you've ever looked at your debts and thought, where do I even begin. This episode is going to give you structure, options, and a whole lot of reassurance that you, my friend, are not failing. Let's get into it. So you've got a few bad debts and you're ready to pay them off, but where the heck do you start in terms of prioritizing your debts and

Starting point is 00:03:03 what tricks are there to actually start paying them off sooner? I know, G, I know. She's got the answers. My name is Georgia King and joining me as always to answer these questions is financial advisor, Victoria Devine. V, why is debt prioritization so very important? Because if we're in debt, we need to prioritize it, which is probably the wrong thing to say at the start of an episode. But at the end of the day, often when it comes to debt, and if we are in debt and we are stressed about it, we stick our heads in the sand and don't do what we should, which is sit down and go, you know what, how am I getting out of this place? What am I going to be doing? And what am I going to prioritize first? Once you make a list of prioritizations, you'll

Starting point is 00:03:47 find that you are so much more motivated to actually kick them down and get it done and start seeing progress. Whereas if you haven't made a priorities list and you haven't worked out how you're going to get out of that place, you are often more likely to feel just super overwhelmed and like it's never going to happen. So we're doing it one so we can get out of debt, but two for our own mental health, Georgia King. Beautiful. So it's like a plan that'll make us pay down our debt sooner. We'll feel more motivated. And that's kind of the gist. Yeah. Yeah. And it's all about just understanding as well. Like why are we here? How did we get here? Are there some things we need to change, but also what one are we going to pay first? Are we going

Starting point is 00:04:25 to pay credit card one or two or three, or, you know, maybe you've got a personal loan and it's about working out what that looks like. Because often when you have a lot of debts or you're in a situation where there is a number of different ones to prioritize. So often we can feel super overwhelmed and just putting ourselves in the best possible position is going to mean that we are actually going to get out of these instead of consistently putting it off or just paying the minimum because you're just not sure what to do. Yeah. Okay, cool. So before we do get into it V as well, I assume today we're going to be talking about good debt and bad debt. I know our OGs are going to know exactly what the difference is, but for our newer listeners, can you clarify

Starting point is 00:05:05 what it does mean? I can clarify that. And if you've read my book, which arguably everybody should have, you know that I classify debt in three ways. I classify it as good debt, bad debt, and okay debt. So, good debts are things that actually help contribute to your wealth creation. So, that could be something like a mortgage because over time, you're actually creating an asset for yourself. It could be an investment loan, not as common, but definitely worthy of consideration where you've borrowed money and you've invested in something. It could be a business loan as well. I don't want people to think that any type of loan is negative, but if it's creating you wealth, from my perspective, it's good debt. Doesn't mean

Starting point is 00:05:45 we don't prioritize it. We absolutely do, but we don't see it as something that we have to extinguish ASAP because it's meant to be helping us over the longterm. Okay. Debt from my perspective is something like a HECS debt. So I wouldn't call it good debt because at the end of the day, yes, it is helping your future wealth because you're getting an education, but it's still something that is going to impact your cashflow if you have those help repayments coming out of your income each and every single week or month. So with HECS debt, yes, it's really important to prioritize and make sure we're paying down, but it's something that a lot of people make the decision to not add contributions to. So they might just be paying the minimum for a long period of

Starting point is 00:06:26 time and that's totally okay. And the reason they might not prioritize that is because hex debt or help debt, as it's called nowadays, it's just showing my age, George. That debt doesn't actually accrue any interest and there's no timeline on paying it. So, if you don't earn over a certain amount of money, you don't have to start paying it back. And it only increases in line with CPI or indexation. So that's how much the cost of goods and services increase each and every single year. So it's only accruing, I think last year was like 1.8%. And that's an okay thing to carry given the amount of flexibility that these repayments carry. So if you lost your job, you're not going to be in a position where the government's like, oh my gosh, you have to pay

Starting point is 00:07:12 back your HECS debt. What are you doing? Whereas the same is not true for a credit card, which I categorize as bad debt. So, bad debts are debts that actually stop you from attaining any level of financial freedom. These are things like credit cards, afterpay, any type of buy now, pay later scheme, and personal loans. So, if you're a bit confused and you're like, yeah, but V, like, I don't know if it's a good or a bad debt. The question is, what have you got to show for it? Is it clothes? Is it shoes? Or is it future wealth? If the answer is future wealth, it's probably good debt. But if it's stopping you from creating your wealth, then that's when we really need to be having a think about prioritizing it and smashing it out

Starting point is 00:07:54 ASAP. So when we look at it, I'm not saying shun credit cards, shun personal loans. Like as you know, Jay, I've had a personal loan. I've had credit cards. I found myself in a bit of a sticky situation with them, but at the same time, would I change why I use them? No, I used a personal loan so I could go overseas and study because I couldn't afford it in that moment. Yes, a lot of people would say, oh, you should have saved for longer and just done it the year after, but I wanted to do it then. And you know what? It worked for me. So gee, I don't regret getting them. I do regret the amount of stress and anxiety I put myself through and the amount of sleepless nights, but at the same time, I wouldn't change that because that got me to where I am today.

Starting point is 00:08:34 But it's one of those things that I wish someone had sat me down and said, Victoria, do you actually understand what this means? So yes, I was paying for an experience. I wouldn't change it. I had a brilliant time, but I do wish I had better savings habits. So I wasn't in that position in the first place. Yeah. But like, look how far it got you. You learned so much from it. And I guess this episode today, it's like not about shame. There's none of that in the shoes on the money community anyway. But yeah, we're just going to talk through exactly how you can get ahead sooner. Okay. So let's get into it then V. What strategies are there for debt prioritization? Oh my God. I need a sip of my tea. What is my voice doing? Well, you have a sip of

Starting point is 00:09:10 your teeth while I explain what these strategies are. So strategies for debt prioritization, there are millions, but I talk about two key methods more often than not, because I feel like they actually help the most. And these two strategies are not my own. I didn't create these. I'm absolutely not taking credit for them. I don't know who created them because I feel like they're so universal when it comes to debt reduction, but they work really well. And these two strategies are called the avalanche method and the snowball method. And I mean, it sounds very like wintery, like, Oh, it's a winter festive episode, but both of them actually have nothing to do with the snow or winter, but both of them do accelerate the debt reduction process in their

Starting point is 00:09:55 own ways and give you the structure you might be craving to help you get out of debt. So the first one is the avalanche method. Avalanche, avalanche, unsure of which is right in Australia. I'm sure I'll be corrected on that later, G. But essentially, this method of debt reduction sees you paying the highest interest rate first while still making minimum repayments on all other debts. You're not paying them at all, but we are aggressively trying to get rid of the debt that has the highest interest rate first. And then once that's paid off, you work your way down to end up paying the debt with the lowest interest rate. So there are a number of reasons why you do this. So there are good bits. Using this method means that you will pay less in the long run,

Starting point is 00:10:39 money win, because you are targeting the debt with the largest amount of interest first so that you're not accruing a lot of other debt in the background. And it can also speed up the debt repayment process. So by only paying minimum on your other debts and aggressively paying one, you're saving the most interest and that's putting you in the most preferable position. a couple of downsides there always are it requires a fair bit of discipline so it's not easy to do these things and that is okay but it is about commitment and it can stay harder to stay motivated because sometimes the debt with the highest interest rate is not necessarily the biggest debt you have so we need to make sure that we understand why we're doing this and commit to

Starting point is 00:11:22 it so that over the long term we get rid of it and stay motivated in comparison the snowball method G is the exact opposite. Oh, that's a bit dramatic. It's not the exact opposite, but the snowball method is basically the opposite of the avalanche method where you pay off and target your smallest debt first. So, you completely forget about the interest rates on all of the debts and you just plan on tackling the smallest debt first and then you work your way up to the largest debt without taking into consideration any of the interest rates. So, some people prefer this because there's a number of obviously good bits and I'll explain those in a second. But some people don't like this because obviously interest rate isn't taken into consideration and that can

Starting point is 00:12:07 make people feel a bit angsty. So as I said before, there are some good bits. I love the snowball method because it helps you nail smaller goals sooner. You're going to feel more motivated. You're going to feel more accomplished because you'll be like, heck yes, I got one debt smashed down and you can move on to the next one so it makes you feel like you are making more progress than you are with the avalanche method doesn't mean you are or not it's just usually when you get to close a credit card or get to shut your after pay like that's going to feel really good and keep you on the right track one of our best mates uh dave ramsey he's not my best mate g but i would like to get him on the show you guys should do a collab we should i think he's pretty

Starting point is 00:12:50 picky with who he collabs with but did you know he collabed with our mate glenn james from my millennial money yeah on whose podcast on my millennial money really yeah when he came to australia he hung out with glenn james and i'm not gonna lie i was a little bit envious because he's known as a bit of a finance whiz in the u.s in saying that i do want to stipulate i don't agree with all of his advice and there are some things he says that i go come on dave mate calm down but he is really inspirational in this area. So, anyway, back to what I was trying to say about old mate Dave. He basically says that even though the avalanche method should technically see us paying less, the snowball method is more effective because personal finance is

Starting point is 00:13:34 20% head knowledge, which is not how I would have explained it, but knowledge and 80% about behavior, which we do at She's On The Money absolutely agree with that. And you need some quick wins in order to stay super pumped enough to get out of debt completely. So he's not wrong. The snowball method is also easy because you don't have to do any maths. You don't have to think about the interest rate. You don't have to calculate anything. You just start with the smallest debt, start smashing it off and making as many repayments as you can to that small debt to get rid of it. Obviously, while still making minimum repayments on your other debts, please don't neglect them, but it just is a little bit simpler because there's no working things out or

Starting point is 00:14:18 calculating interest rate or how much you'll pay over the long-term versus how many years. So what are the negatives then, Bea? So as I said before, G, you're going to end up paying more because of the interest factor. But again, it's about motivation and feeling like you're smashing it out. And it may be a longer journey to becoming debt-free, but it's more about what are you actually going to be able to feasibly commit to it's not about which one's going to save us the most money because when it comes to debt we actually just need a plan that works for us personally not necessarily works best on paper yeah okay so so avalanche is harder but more effective or not necessarily more effective but in like on paper more effective more effective if we

Starting point is 00:15:02 work out what that actually means on paper yeah yep snowball is potentially easier but a slower and steadier method of going about things. How do you decide which one is right for you? Well, I prefer doing it based on which name you think is cuter. So like, I think snowball, like snowball's fun. It was the name of the cat in the Simpsons. Like it just makes sense. Avalanche sounds aggressive. So like, I don't go with it more seriously. Gee, it comes down to your personality. It comes down to whether you're someone who has strong discipline to be able to put that extra cash towards debt repayments. So if that's you, I'd probably choose the avalanche method because you're on top of it and you're actually motivated by that. But if you're someone

Starting point is 00:15:44 who struggles with self-motivation, which to be honest, I think I would be a snowballer, not an avalanche because even though it makes logical sense, I just like progress. So sometimes if I see that I owe 30 bucks or something, I'm far more likely to just want it gone. And then I feel accomplished I'm the type of person as well gee when I'm writing a to-do list I write things I already have done same same then you highlight them so if that's you and you resonate with putting to-do list items on the to-do list that you've already done I'd probably say you're a snowballer okay so completely up to you and just like sunscreen because we obviously are very big advocates of sunscreen in this community where they say the best sunscreen is the one you use

Starting point is 00:16:24 the same goes for debt reduction methods the best one's just the one that you're going to stick to I love that. Okay. So that is the snowball and the avalanche methods sorted for you. So they're the main methods of debt prioritization and paying down our debts. But what about debt consolidation? Is that a method as well? Or I guess it's not really prioritizing. It's really just prioritizing all of them and making them one. Yeah, it could be. No, I love this. We did an entire episode on debt consolidation. So you should be a wizard on this by now. Like come on Georgia King. But debt consolidation is essentially, if you didn't listen to that episode, please do. But if you didn't, it's where you take out a loan to cover all of our debts so

Starting point is 00:17:08 that we're just working out paying one debt instead of multiple. And there are a number of reasons we would do this. So one, because personal loans and credit cards often carry higher interest rates. So the average of a credit card usually sits between 14 and 22% interest rate. A personal loan is probably sitting around 14 if it's unsecured maybe a little bit less if it is a secured personal loan but essentially when you roll them all together you take out what's called a debt consolidation loan and it's essentially a personal loan that just covers all of those debts pays them back and you just have one in one place. So a good example is if let's say you have three different credit cards or with different levels of debt associated with them and different interest

Starting point is 00:17:51 rates and they're being paid at different times of the month debt consolidation would mean it swoops in, it pays off all of those for you. It gives you one single loan that you owe interest on. It's often a lower rate of interest and you just pay that off once a month. The benefits of this is it can feel so much more freeing. Like if you're someone who is in a bit of a pickle, lots of debts can feel really overwhelming and it does feel like you're pulling them all together, taking control, and you just have one repayment to make. It's less overwhelming and it just puts you in a position where you feel a little bit more empowered to get debt free. You might be able to manage a lower interest rate, which is a bit of a money win. So that means that you are

Starting point is 00:18:32 going to be saving money over the long term. And it's important to understand that it's one less admin task as well. So at the end of the day, if you're paying lots of different debts, let's be honest, doing one thing instead of three or four kind of just makes sense, Jay. Okay. So that That actually does sound quite good. But I remember from that episode that there were some downsides. I can't remember what they are. So can you go through that? I'm sorry. Honestly, J King, you have been on this show long enough to be a financial whiz yourself. But as you were asking before, when it's not a good idea, there are a number of downfalls and we just need to be aware of them. It doesn't mean we don't do it. So it can take us longer to pay off one

Starting point is 00:19:15 large loan instead of, you know, a multitude of little debts, which could ultimately cost us more. We just need to take it into consideration. It can leave us a bit tempted to spend more and leave you in a deeper level of debt if you do go and get another credit card. So if you don't have a lot of self-control, I would be really careful about this because consolidating it makes it feel like it's going away, even though it's still there, it's just more manageable and more palatable. So you might go, you know what? I've got that. That's really manageable. I'm going to go get another credit card. Yeah. Not a good idea. Yeah. Yeah. Right. And there are a few scammers in this space. So please be careful. If you do go down this path, please, please, please make sure you do so with

Starting point is 00:19:59 a legitimate mainstream lender, as there are a few scammers out there that do make you pay upfront freeze to set up loans. And then they never follow you up and give you the money that is required to pay off all your spooler debts, which means that you're in a bigger pickle than you were before. and if you do have a home loan it could be impacted if things go pear-shaped with your debt consolidation loan we have spoken about this before and it's a bit of a shout out to an old show partner that you know I actually still keep in contact with we haven't worked with in a little while but hopefully we will soon because I love them but our friends at WISR so W-I-S-R they do a lot of debt consolidation and also help advise on what the best outcome would be and I really

Starting point is 00:20:40 like what they do obviously you can also call the national debt helpline and all of that because they are really helpful but when it comes to debt consolidation wiser do a really good job again that's not a sponsored mention it's just good eggs doing good things and you guys deserve to know about it brilliant um are there any other methods that people use or are they the main they're pretty much the main methods i mean there's a million different ways you could do it you could put a chart on your fridge or an app on your phone or you know there's lots of different ways that you could get rid of debt. But those are the two main ways that I see people doing it. And I talk to clients about, and then obviously debt consolidation is something on the top of that,

Starting point is 00:21:20 that you go, is it actually better to do that? But with debt consolidation, one thing to be aware of is if you are up the river of debt pretty far, sometimes that won't apply to you. Sometimes they'll say, look, we're not willing to take on that level of risk. So if you've got a few credit cards and you're in a bit of a pickle, yes, debt consolidation might be an option. But I have worked with clients and people before where we've gone to consolidate a debt and the banks have said, no, thank you. Come back once you've gotten a fair bit of debt down so that we can do it then because we're not willing to take the risk right now. So don't feel bad if that is you. And if it is you and you're feeling super, super, super overwhelmed, I get it. Our friends at the National

Starting point is 00:22:01 Debt Helpline are going to be able to tell you exactly what your next steps should be. So speaking of the National Debt Helpline, EE has that for transition. When I was doing some reading for today, they mentioned high priority debts and they said that they should be the ones that we focus our attention on first. What are they? Yeah. So I think that that's really important to point out as well. So when you're in debt, it can feel super overwhelming, but basically these are debts that impact our lives directly the most. So we're talking things like your rent or your mortgage or council rates or body corporate fees or a car repayment or things like energy and water and food we are not talking go and pay off your credit card for the shoes that you bought if you

Starting point is 00:22:46 can't put food on the table we need to negotiate that so if you are struggling then these are the debts that you need to focus on first and often we feel really guilty because a credit card company will call us and they make us feel awful for not paying it and we don't feel good about that situation. So you're like, oh my gosh, maybe I should just pay that off. But if you're not able to put food on the table, that is not something you should be paying. And I'm, I know that they're not going to love me for saying that, but I would be saying to them, look, really, sorry, I don't have the funds for that right now. I have to put food on the table for my kids or for myself, or I need to pay rent so that I can keep a roof over my head because nobody deserves to lose their home

Starting point is 00:23:26 over bad debt. If you're seriously struggling, please, please, please reach out to our friends at the National Debt Helpline. They are always so helpful. They are a wealth of knowledge in this space and they'll be able to help you create a plan. I know some of you have messaged me and you've said, look, I really want to call them, but I feel really overwhelmed or I don't think my situation is bad enough. No, there's no such thing. When you call them, they'll work out what you need. So they'll pick up the phone. They'll be like, hey, G, how are you? Hope you've been well. How can we help? And you'll tell them a little bit about your situation and they will match you with the right person. If it's not the right service for you, they're just going to tell you

Starting point is 00:24:03 that they are very kind humans, but usually they will match you up with a financial counselor for free to help you get out of the situation that you're in, which is why I am such a big advocate of them. Do you hear that a lot? I'm not sure if you would hear it with clients or in our community, but do you feel like a lot of people don't reach out for help because they don't think they're in a bad enough spot or maybe they think that they're taking that service from someone else who needs it more like is that yes and it's not a thing and complete tangent have you watched on Netflix made oh my god that's what I was thinking of when you're saying all of this stuff so I watched that recently with Steve and she in that show does exactly that she like goes

Starting point is 00:24:44 to get help and she's like yeah but like I don't have real abuse and the woman at the the shelter is like um what is real abuse and she's like oh like my my partner doesn't hit me and it was emotional abuse and anyway financial abuse yeah it was emotional abuse financial abuse it was it was a lot it's a really good show it's probably a bit triggering if you're going through it so just a bit of a content warning there for you guys but i really enjoyed it but the thing that i saw was yes we always think about other people being in a worse off situation than us when in reality if you're struggling with something that doesn't mean that just because someone else has it harder that your struggles aren't worthy of consideration. Like you are worthy. And at the end of the day,

Starting point is 00:25:26 if it's something that you need help with, please don't feel like you can't reach out. But yeah, George, I get a lot of messages from people saying, Hey V, I just don't know who to contact. And I say national debt helpline. They're like, Oh yeah, but I'm just not bad enough for that. That's okay. You can still call them. You don't need to be the worst of the worst to call them. They're there for everybody. They're there for help. Like if I was in a situation and I didn't know what to do and I had a whole heap of debt, I'd call them and feel really comfortable calling them because I know they're the right people for those situations. So, please don't feel like you need to have a worse situation than what you do to reach out for the help that you

Starting point is 00:26:03 deserve. Yeah, really well said there, V. All right, guys, we will be back after a very short break to talk through strategies of paying down our debts faster. Plus, we'll be answering a few debt-inspired questions from the community. So, please don't go anywhere. all right b let's talk through some strategies for actually paying down our debts faster what tricks of the trade do you have for us tricks of the trade look let's call them tricks of the trade you guys are going to be like hey it's b the broken record again because i'm going to be like sort out your budget sort it out just get it done do you know what i'm so passionate about you guys sorting out your budget so that i put a free one on my website that you can go and download

Starting point is 00:26:46 It's literally the one I use with my clients. It's not the fancy budget and cashflow masterclass one that calculates your cashflow and tells you what bank accounts to put it in. It's not that one because unfortunately I can't give that one away for free. But this one is going to help you track what you earn, what you spend, what you own, and what you owe. It takes into consideration everything that you need to get a clean, clear budget in order and work out if you are spending more than you are earning or you're earning more than you are spending, which is a very good situation to be in. So download that budget. If you haven't done it yet, please do. It's literally free. And then have a think about some things that you can do in addition to that. So a budget is

Starting point is 00:27:29 going to be helpful, not because it's restrictive. So I'm not saying go on a budget, like cut back, but a budget is going to tell you where you're spending your money and where you're not. it's going to tell you what you are prioritizing and it might just highlight some things that you go oh victoria over eight three nights this week is unacceptable whereas if i didn't have my budget maybe i wouldn't have been thinking about that because like the hard numbers aren't in my face the next thing is thinking about how can you get some additional funds in the door can you get a side hustle and we're not saying go and start an entire business gee we recently did an entire episode on I think it was like five ways to bring cash in the door without leaving your couch yep

Starting point is 00:28:13 like go listen to that episode because it's side hustles that don't require any money to start it's surveys it's online work it is stuff that you can do literally today without having to put another dollar aside which is a money win I reckon the next one take a leaf out of Jessica Ricci's book, sell some stuff you don't need. She's the biggest hustler I know, G. She's all across Facebook marketplace. She puts her clothes on Depop all the time. Sell stuff you don't need and chuck that cash towards debt repayments. Even if you're like, do you know what? I don't have enough to get rid of the debt, but it'd feel so good to have another month's worth of debt repayments just in the bag. Or putting that cash into an emergency account so you feel a little

Starting point is 00:29:01 bit more comfortable about your budget. So it doesn't necessarily mean you need to go and sell stuff to get rid of the debt completely, but you might be feeling a bit uncomfortable about your financial situation. So selling some stuff to create an emergency fund while you have debt can be really empowering because you know, you know what, if I don't have the funds this week, I've got an emergency fund that I can dip into, pull it out and I'm all good. And I'm not going to go into further debt because I don't have cash available. So for my clients and I, that seems to be a really empowering way of kind of getting ahead, even though we're not in the position to be able to extinguish the debt completely right now, because we feel a little bit more cushy,

Starting point is 00:29:41 a little bit more comfortable, and it makes you feel so much more secure on that journey. The next one, stay motivated using visuals. Go download the She's On The Money debt tracking charts and our savings hacks. Put them on your fridge. Keep them front of mind. Make a little mood board. Put pictures on your fridge of what you're going to get up to when you are out of debt and how you're going to feel so it is always front of mind. And make sure that you are putting yourself in the best position. If you can't pay down the debt, stop putting so much more pressure on yourself to do it faster. Just because we're talking about it does not mean it's going to work for you. If it is the long slog for you and you know that that's the case, that's okay too.

Starting point is 00:30:25 All right, V, I thought it would be fun to finish today's episode by answering some debt-related questions from our community. Genius. You sucked. Okay. So, the first one here is from Danny. So, she hates the feeling of having a hex debt. She doesn't like the feeling of debt at all and knowing her goal one day in the near future will be to have a house and then take on more debt. what is your advice then for Hex? Does she just leave it? She's also added that it makes her so uncomfortable watching the indexation get whacked on, which for her is over $500 a year, et cetera, et cetera. That's the essence of the question. So what do you think, V? So obviously I can't tell you which debt to prioritize because that would constitute

Starting point is 00:31:09 personal advice, but you know what I can tell you guys? I can tell you what I do personally, and I pay my Hex debt off at the minimum. Um, it is no secret that I am one of those just like real nerdy people. Like, gee, you know, my little sister, we are chalk and cheese. She's like the cool one that always has the fashionable wardrobe. And I've been the one that's like, Oh, but I went to uni and then I went to uni again and bam, I went to uni again. Cause like, just not cool. Like maybe cool kids do go to uni. I don't know. But anyway, to be brutally honest, my Hex debt is still gee put your coffee down because you'll spit it out still over six figures six figures six figures because I have I have my undergraduates I have my postgraduate and then I have a master's

Starting point is 00:31:55 degree as well and then I've also paid for other education outside of that because I couldn't put it on hex which is totally fine but I prioritized personally saving up for a mortgage overpaying off my HECS debt. And I did that because HECS doesn't stop you from getting a mortgage. So unlike having a credit card or a personal loan, which will potentially stop you from getting a mortgage, HECS debt, it's just taken into consideration as a part of your cashflow because the bank knows if you don't have an income, that's a debt that's not going to be chased. It can just be put on the shelf and put to the side. It does impact your cashflow. So each and every single month before you get your salary from your employer, it will be taken out, which means yes, if you earn

Starting point is 00:32:41 $70,000, less money will go into your account if you have a hex debt than somebody whose hex debt is gone. But from my perspective, I'd much prefer that than to put off the goal of purchasing a house. Because gee, if I had prioritized paying off my hex debt instead of purchasing a house with Steve, I would still be paying off my Hex debt. Yeah. Like I wouldn't have a house. I wouldn't be creating wealth. I wouldn't be in that situation. So I made the conscious decision to not do additional Hex debt repayments because releasing that additional cashflow wasn't my priority. My priority was getting in the market and actually saving for a home. And I knew that if I had to then pay off another hundred grand plus, which is really scary and probably not

Starting point is 00:33:30 something I should literally admit on a podcast this big, but I'm happy to share it. I would be purchasing in another five years because of my savings capacity. So I just don't want to put myself in that position in saying that. I think that a lot of people do feel uncomfortable with it because we are geared to feel relatively uncomfortable with debt and that's how we see it. But $500 a year indexation is an additional debt. Like, yes, it goes up, but it's just going up to make sure that it matches the costs of goods and services in that financial year which from my perspective I'd prefer to be paying that $500 in additional debt than I would to not be in the housing market because I was saving but again that's me and it might not work for you and I

Starting point is 00:34:17 just want to share that because it's one of those things where people are like oh what should I do and I'm like well I can't tell you but I can share with you what I do personally yeah for people like me who we listen but we don't always absorb what does what what is indexation again all right indexation g or let's specifically reference what it means for help debt it means that it maintains the real value of your debt by adjusting it in line with changes of the cost of living which is measured by cpi and cpi is the consumer price index and that is calculated on the first of june each and every single year, an indexation is applied to part of an accumulated study and training debt that remains unpaid for more than 11 months. So when it comes to CPI,

Starting point is 00:35:05 the best way to explain it is with a Macca's cone. So remember when we were little G and Macca's cones were like 50 cents? Yes. And they've increased in price. Why have they increased in price, Jay? Don't say because Mac is a tiny screw so far, because they absolutely are. But it's increased because the cost to produce that item has increased. So it's not as though they're like, oh my gosh, over time we can just charge more and make the same profit. Like the cost of all of those things and transport has all increased over time. So the Mac is kind of has increased in price. So inflation or indexation is essentially the method of linking the price or value of an asset to a price or price index of some type to adjust for inflation. So it's all linked,

Starting point is 00:35:54 my friend. Hence the name, indexation. Hence the name. So it's one of those things where, yes, things increase in price over time and to make sure that our debt actually gets paid off, but also the government is in an okay position to continue to provide this service to us because this isn't normal. So yes, in Australia, we are incredibly lucky, but in the US, they literally have to go get personal loans to be able to pay their university fees and they are so expensive so yes like 500 bucks a year is it's a fair whack of money but oh my gosh that's the cost of education like that that for us is putting us in a position where we can go and access education in the same way anybody else in this country can as opposed to in America maybe you

Starting point is 00:36:40 won't get the loan so you can't go to university or you can't afford it because you don't have the job that would support it whereas in Australia if you don't have the job that supports it then they're like don't pay it that's great no problems yeah yeah oh that's interesting so they've done they've done a good job there the what legends gov anyway what other questions have you got so the next one here v is from Cassandra so she will be in a position where the ATO owes her money roughly twelve hundred dollars we love her question is should she dump all of that on her credit card leaving about one thousand dollars to pay off then she's cutting it up or should she put it into savings for a house deposit um so i guess the question here is you got some bonus

Starting point is 00:37:27 money savings or debt can you answer this jay do you reckon you have i think i know what is it Your debt, right? Because if you have debt, then you don't have savings. Yes. And that's what I was hoping you would say. So again, not advice, but essentially we believe at Cheese on the Money that if you are in personal debt, not mortgage debt, personal debt, so credit cards after pay or personal loans, you don't have savings. Because what are your savings going to do if you have a credit card that's accruing a whole heap of interest, especially a credit card that has from all intents and purposes, like two grand on it. Like another two grand in your savings, is that actually getting you towards a house deposit faster? Or are you at some point just

Starting point is 00:38:12 going to have to pull it out and pay off that debt? Riddle me that Georgia King. Yeah. Yeah. Okay. So that one's pretty straightforward, I guess. Look, it's pretty straightforward, but again, if you feel like you want to put it in savings, I can't argue with you. You just need to be educated enough to make the decision that is right for you. Yeah. Well, I think that's a, it's a good reminder and it's good to make really clear because we are fed messages that we should pay down our debt and that we should be building our savings. So just to kind of clarify that debt should be your priority is important, I think. Yes. But this question as well, Georgia, stipulated savings for a house

Starting point is 00:38:48 deposit. And to jump on my high horse for a second, I do believe in saving while you have debt for an emergency fund, because an emergency fund is going to afford you the freedom that you need while paying off debt. Because often if we're in debt, we don't have a lot of free cash flow and if another unexpected cost comes up, it's usually going to be on debt again and you're going to have to go further into debt on that credit card. So I would absolutely prioritize stocking up a little emergency fund so that while you're paying off your credit card, if another unexpected cost pops up, you can go, you know what, I've got this. Or if you're not able to pay the debt repayment that month it's okay because you have savings that can cover that

Starting point is 00:39:31 so I don't ever recommend anybody to be in the situation where they have debt and absolutely no savings but for me those savings would be an emergency fund and to stipulate I don't believe that they're savings they're an emergency fund because savings are put aside to buy something else in the future whereas an emergency fund is a little pool of cash that sits to the side and we have absolutely no intention of drawing on it unless it's an emergency it's not for a future holiday it's not for a pair of shoes that feel like an emergency it is not for anything other than future use financial security circling back to what we said earlier v like if anyone does need more encouragement um to kind of understand how important having an emergency fund is i feel like

Starting point is 00:40:19 watching made would be a really good idea because it makes all of that so clear she was in such a pickle and i mean she ended up getting out and that is really good and she ended up you know living her best life and being able to move i won't ruin it for other people i guess but if she'd had an emergency fund she would have been able to escape the situation she was in in such a cleaner way so that's what an emergency fund affords us it affords us the ability to escape a job, a circumstance, a person, a home, anything that we don't want to be in anymore. Even if it's just covering a taxi to leave a party you don't want to be at anymore, an emergency fund is there to protect you, not to pay off debt.

Starting point is 00:41:05 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, 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 Sherpa PTY LTD ABN 321 649 27708 AFSL 451 289. you

She's On The Money - Summer Starter Series: Managing Debt

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