Say goodbye to your debts

Have you ever stayed at a party for just an hour too long and really regretted it the next day? Well, if you use this analogy and apply it to the amount of debt Australian's have racked up over the past 5 years you'll see that we have significantly over indulged. In only 5 years the total amount of debt has risen from $425 billion to over $1 trillion dollars and within that credit card debt has risen by a whopping 140%. Now with higher interest rates and increasing costs of living many Australian are probably wishing that they had not probably spent as much as they did over the last few years to set themselves up for the hangover of debt hangovers.

Unfortunately there's no quick fizzy drink that will cure a debt hangover. However, there is a remedy that will definitely help you pay off your debts in time frames you can only have dreamed of. I call it the Debt Buster and it simply uses the principle of accelerated payments, but with a twist. Sure you can always start by reducing your interest rates on your debts by switching or refinancing however once that's done you need a system. That's why the Debt Buster will be so handy.

To start you must go back to your current budget and see if you can find some extra dollars to use as extra payments to your debts (more on this in a few seconds). See if you can consistently find say 10% of what you currently spend somewhere in your budget by being more efficient with your spending habits.

Once you have done that, write down the type of loans you have, the latest amount outstanding for each debt and the minimum monthly payment required. Once you have got this information you'll need to create what's called the Buster Rate which is simply a ratio that will help you determine which debts you pay first under the Debt Buster Program.

Essentially the Buster Rate will give you the number of months it will take you to pay off a debt (assuming no other additions are made to the debt amount. This is a very important bit of information and it is critical to your success in the Debt Buster Program. To calculate the Buster Rate simply divide for the amount of a debt by its minimum monthly payment required. Then do this for all your debts (ie your credit cards, personal loans, store credit and your home loan if you've got one).

Now for the fun part. Working out the priority to pay back your debts. Rank your debts from the lowest to the highest Buster Rate. Remember the Buster Rate represents the number of months it will take to pay back a loan. Therefore the smaller number should represent the highest priority for you to pay back. If you end up with the same Buster Rate for two debts always use the debt with the higher amount owing as a higher priority to pay off as this means that you'll get rid of much more debt faster.

Whilst maintaining your minimum repayments on all your debts, start the Debt Buster program by selecting the debt with the shortest time frame to pay back and add any antra money you have on top of its minimum monthly repayment. Once that debt is paid back you must then transfer all the money you were paying on the first debt to the debt with the second shortest time to repay on top.

Now things will start speeding up as the Debt Buster program starts to really kick in. Continue to follow the program until all your short term debts are paid off. Then transfer all the payments you were making on your other debts to your big debt (perhaps your home loan) and just watch that debt disappear in fast forward mode. Saving you many years of repayments and tens of thousands of dollars in interest payments. See, there is cure for a debt hangover. Albeit a little slow but very, very effective!

Want to know how to do this for your own debts?

Book a Lifestyle Money Coach today.