Why does a financial planner ask so many questions, and what should I be asking a potential financial planner? Um... good question.
Feel like you’re drowning in debt RN? Join the 2020 club… Yup – last year was a lot, and it’s left quite a few of us feeling the pinch. So, we asked financial advisor and investment specialist Adele Barnard to help us out with some pro tips.
First off, know that not all debt is technically bad. “Good debt” increases your net worth and adds value to your financial portfolio. Think: a bond on your property, a student loan (it’s an investment in yourself, right?), vehicle finance and even a credit card… if used responsibly (for example, one that’s used to accumulate loyalty points and is ideally settled every month).
Cool. So, what does “bad debt” look like? Think: a credit card that isn’t settled every month, a credit card budget facility that’s maxed out, personal loans or an overdraft in arrears. Retail store accounts also fit into this category. Maxing out those cards to keep up appearances or to support your “treat yo’self” habit are red flags.
Here are the steps you can take to get rid of the bad guys above, according to Adele:
1/ Check your credit profile
This will give you a clearer idea of your actual financial position. To view your profile, register on Clearscore, pull your latest credit report and get in touch with a financial coach to talk you through it.
2/ Identify the most expensive debt
Once you’ve got your credit report, you have two options. The first is called the “debt avalanche method” – identify the most ‘expensive’ debt (the highest interest rate) and start making more payments towards that. An alternative is the “snowball method”, where you pay the smallest debt first, settle that, and use that repayment towards the next one, working your way up. The snowball method suits most people mentally (it’s cool to see your debt being reduced), whereas the avalanche method takes time, which can knock your motivation. Still, choose the method that works best for you.
3/ Explore debt consolidation
If you’ve explored the above options and still feel totally over-indebted, try debt consolidation. This involves taking out one new loan to pay off all your smaller debts. Thus, multiple debts are combined into a single, larger debt – ideally with a lower interest rate or lower monthly repayment. The lower monthly instalment will give you some breathing room, but remember: any extra money you have should be put towards your debt!
4/ Figure out your ‘why’
Getting out of financial difficulty will include sacrifices so you’ll need to prepare yourself mentally. Checking your progress is key in keeping you motivated. The best way to do this is by creating a budget. (Tip: see where you can save on your existing budget by scrutinising your bank statements.) Every extra cent you have should be paid towards your debt – there’s a lot of power in extra payments!
Of course, there comes a point where a person can only cut so much – and this is where a side hustle comes in. How can you can use you skills to make more money?
5/ Align your spending
Thomas Jefferson once said: “Never spend your money before you’ve earned it.” Make this one of your money mantras. Unsubscribe from those pesky retail emailers, cut up credit cards and retail cards, and learn to say ‘no’ to things and events that don’t align with your budget.
The most important tip? Start today. Stay away from bad debt; rather opt for good debt to accumulate wealth and achieve your money goals. You owe it yourself, after all.
Disclaimer: views expressed are Adele’s own and do not constitute the views of her employer. People photo created by wayhomestudio – www.freepik.com