WEBVTT - Debt Prioritisation 0:00:00.200 --> 0:00:19.480 She's on the Money. She's on the Money. 0:00:23.280 --> 0:00:26.000 Hello, and welcome to She's on the Money, the podcast 0:00:26.079 --> 0:00:29.400 the Millennials who want Financial Freedom. So you've got a 0:00:29.440 --> 0:00:31.640 few bad debts and you're ready to pay them off. 0:00:31.800 --> 0:00:34.080 But where the heck do you start in terms of 0:00:34.120 --> 0:00:37.479 prioritizing your debts and what tricks are there to actually 0:00:37.520 --> 0:00:40.440 start paying them off sooner? I know, Gi, I know, 0:00:41.760 --> 0:00:44.800 she's got the answers. My name is Georgia King, and 0:00:44.960 --> 0:00:47.640 joining me as always to answer these questions is financial 0:00:47.680 --> 0:00:52.760 advisor Victoria Divine. Why is debt prioritization so very important? 0:00:53.240 --> 0:00:55.400 Because if we're in debt, we need to prioritize it, 0:00:55.440 --> 0:00:58.120 which is probably the wrong thing to say at the 0:00:58.120 --> 0:01:01.160 start of an episode, but at the end of the day, 0:01:01.400 --> 0:01:03.600 often when it comes to debt, and if we are 0:01:03.640 --> 0:01:05.800 in debt and we are stressed about it, we stick 0:01:05.840 --> 0:01:08.679 our heads in the sand and don't do what we should, 0:01:08.920 --> 0:01:10.400 which is sit down and go, you know what, how 0:01:10.440 --> 0:01:12.160 am I getting out of this place? What am I 0:01:12.240 --> 0:01:15.560 going to be doing? And what am I going to prioritize? First? 0:01:16.000 --> 0:01:19.640 Once you make a list of prioritizations, you'll find that 0:01:19.680 --> 0:01:23.040 you are so much more motivated to actually kick them 0:01:23.080 --> 0:01:27.040 down and get it done and start seeing progress. Whereas 0:01:27.120 --> 0:01:29.840 if you haven't made a priorities list and you haven't 0:01:29.880 --> 0:01:32.080 worked out how you're going to get out of that place, 0:01:32.520 --> 0:01:35.680 you are often more likely to feel just super overwhelmed 0:01:35.680 --> 0:01:38.199 and like it's never going to happen. So we're doing 0:01:38.240 --> 0:01:40.400 it one so we can get out of debt, but 0:01:40.480 --> 0:01:43.160 two for our own mental health. Jodge a king beautiful. 0:01:43.200 --> 0:01:45.200 So it's like a plan that'll make us pay down 0:01:45.240 --> 0:01:47.640 our debts sooner we'll feel more motivated. And that's kind 0:01:47.680 --> 0:01:48.160 of the gist. 0:01:48.200 --> 0:01:51.160 Yet, Yeah, and it's all about just understanding as well, 0:01:51.160 --> 0:01:53.160 like why are we here? How did we get here? 0:01:53.240 --> 0:01:55.440 Are there some things we need to change? But also 0:01:55.760 --> 0:01:57.320 what one are we going to pay first? Are we 0:01:57.320 --> 0:01:59.560 going to pay credit card one or two or three? 0:01:59.680 --> 0:02:02.000 Or you know, maybe you've got a personal loan, And 0:02:02.080 --> 0:02:05.200 it's about working out what that looks like, because often 0:02:05.240 --> 0:02:07.240 when you have a lot of debts or you're in 0:02:07.280 --> 0:02:10.000 a situation where there is a number of different ones 0:02:10.040 --> 0:02:12.920 to prioritize, so often we can feel super overwhelmed and 0:02:12.960 --> 0:02:15.760 just putting ourselves in the best possible position is going 0:02:15.840 --> 0:02:17.720 to mean that we are actually going to get out 0:02:17.720 --> 0:02:20.400 of these instead of consistently putting it off or just 0:02:20.440 --> 0:02:22.960 paying the minimum because you're just not sure what to do. 0:02:23.280 --> 0:02:24.280 Yeah, okay, cool. 0:02:24.560 --> 0:02:27.160 So before we do get into it V as well, 0:02:27.200 --> 0:02:29.720 I assume today we're going to be talking about good 0:02:29.760 --> 0:02:33.400 debt and bad debt. Our OG is going to know 0:02:33.480 --> 0:02:35.880 exactly what the difference is. But for our newer listeners, 0:02:35.919 --> 0:02:37.679 can you clarify what it does? Mate? 0:02:38.080 --> 0:02:40.640 I can clarify that. And if you've read my book, 0:02:40.680 --> 0:02:44.800 which arguably everybody should have, you know that I classify 0:02:44.880 --> 0:02:48.079 debt in three ways. I classified as good debt, bad debt, 0:02:48.200 --> 0:02:51.320 and okay debt. So good debts are things that actually 0:02:51.400 --> 0:02:54.960 help contribute to your wealth creation. So that could be 0:02:55.000 --> 0:02:58.040 something like a mortgage because over time you're actually creating 0:02:58.040 --> 0:03:01.880 an asset for yourself. An investment loan not as common, 0:03:01.919 --> 0:03:05.799 but definitely worthy of consideration, where you've borrowed money and 0:03:05.880 --> 0:03:09.200 you've invested in something. It could be a business loan 0:03:09.280 --> 0:03:11.840 as well. I don't want people to think that any 0:03:11.880 --> 0:03:14.760 type of loan is negative, but if it's creating your wealth, 0:03:14.800 --> 0:03:17.520 from my perspective, it's good debt. Doesn't mean we don't 0:03:17.520 --> 0:03:21.040 prioritize it, we absolutely do, but we don't see it 0:03:21.040 --> 0:03:24.639 as something that we have to extinguish asap because it's 0:03:24.680 --> 0:03:27.480 meant to be helping us over the long term. Okay, 0:03:27.600 --> 0:03:30.760 debt from my perspective is something like a hex debt, 0:03:30.960 --> 0:03:32.919 So I wouldn't call it good debt because at the 0:03:33.000 --> 0:03:35.120 end of the day, yes, it is helping your future 0:03:35.160 --> 0:03:38.480 wealth because you're getting an education, but it's still something 0:03:38.520 --> 0:03:40.560 that is going to impact your cash flow if you 0:03:40.680 --> 0:03:43.520 have those help repayments coming out of your income each 0:03:43.560 --> 0:03:47.120 and every single week or month. So with hex debt, yes, 0:03:47.160 --> 0:03:50.080 it's really important to prioritize and make sure we're paying down, 0:03:50.160 --> 0:03:52.040 but it's something that a lot of people make the 0:03:52.080 --> 0:03:55.760 decision to not add contributions to, so they might just 0:03:55.800 --> 0:03:58.440 be paying the minimum for a long period of time 0:03:58.560 --> 0:04:01.680 and that's totally okay. And the reason they might not 0:04:01.800 --> 0:04:05.600 prioritize that is because hex debt or help debt as 0:04:05.600 --> 0:04:10.720 it's called nowadays. It's just showing my age that debt 0:04:11.080 --> 0:04:14.760 doesn't actually accrue any interest and there's no timeline on 0:04:14.880 --> 0:04:17.440 paying it, so if you don't earn over a certain 0:04:17.480 --> 0:04:19.839 amount of money, you don't have to start paying it back, 0:04:20.040 --> 0:04:24.200 and it only increases in line with CPI or indexation, 0:04:24.680 --> 0:04:27.160 So that's how much the cost of goods and services 0:04:27.200 --> 0:04:30.720 increase each and every single year, So it's only accruing. 0:04:30.960 --> 0:04:33.520 I think last year was like one point eight percent, 0:04:34.000 --> 0:04:37.320 And that's an okay thing to carry, given the amount 0:04:37.360 --> 0:04:40.440 of flexibility that these repayments carry. So if you lost 0:04:40.480 --> 0:04:42.440 your job, you're not going to be in a position 0:04:42.440 --> 0:04:44.280 where the government's like, oh my gosh, you have to 0:04:44.320 --> 0:04:46.640 pay back your hex debt? What are you doing? Or 0:04:46.680 --> 0:04:48.760 it's the same as not true for a credit card, 0:04:49.040 --> 0:04:52.640 which I categorize as bad debt. So bad debts are 0:04:52.680 --> 0:04:55.960 debts that actually stop you from attaining any level of 0:04:56.040 --> 0:05:00.160 financial freedom. These are things like credit cards, after pay, 0:05:00.240 --> 0:05:04.200 any type of buy now, pay later scheme, and personal loans. 0:05:04.520 --> 0:05:06.040 So if you're a bit confused and you're like yeah, 0:05:06.080 --> 0:05:07.800 but be like, I don't know if it's good or 0:05:07.800 --> 0:05:10.240 a bad debt. The question is what have you got 0:05:10.240 --> 0:05:13.040 to show for it? Is it clothes, it's shoes, or 0:05:13.160 --> 0:05:15.800 is it future wealth. If the answer is future wealth, 0:05:16.000 --> 0:05:19.279 it's probably good debt. But if it's stopping you from 0:05:19.320 --> 0:05:22.320 creating your wealth, then that's when we really need to 0:05:22.360 --> 0:05:25.800 be having a think about prioritizing it and smashing it 0:05:25.800 --> 0:05:28.520 out asap. So when we look at it, I'm not 0:05:28.600 --> 0:05:32.080 saying shun credit cards, shun personal loans, like as you know, 0:05:32.200 --> 0:05:35.359 g I've had a personal loan. I've had credit cards. 0:05:35.440 --> 0:05:37.520 I found myself in a bit of a sticky situation 0:05:37.680 --> 0:05:40.599 with them. But at the same time, would I change 0:05:40.640 --> 0:05:43.880 why I used them? No. I used a personal loan 0:05:43.960 --> 0:05:46.480 so I could go overseas and study because I couldn't 0:05:46.480 --> 0:05:49.000 afford it in that moment. Yes, a lot of people 0:05:49.000 --> 0:05:50.800 would say, oh, you should have saved for longer and 0:05:50.880 --> 0:05:52.919 just done it the year after, but I wanted to 0:05:52.920 --> 0:05:54.560 do it then, and you know what, it worked for me, 0:05:54.760 --> 0:05:57.159 So gee, I don't regret getting them. I do regret 0:05:57.160 --> 0:05:59.440 the amount of stress and anxiety I put myself through 0:05:59.480 --> 0:06:02.200 and the amount of sleepless nights. But at the same time, 0:06:02.200 --> 0:06:04.159 I wouldn't change that because that got me to where 0:06:04.200 --> 0:06:07.200 I am today. But it's one of those things that 0:06:07.240 --> 0:06:09.320 I wish someone had sat me down and said, Victoria, 0:06:09.400 --> 0:06:11.960 do you actually understand what this means? So, yes, I 0:06:12.000 --> 0:06:14.000 was paying for an experience. I wouldn't change it. I 0:06:14.000 --> 0:06:16.440 had a brilliant time. But I do wish I had 0:06:16.440 --> 0:06:18.720 better savings have it so I wasn't in that position 0:06:18.800 --> 0:06:19.560 in the first place. 0:06:19.680 --> 0:06:21.880 Yeah, but like, look how far it got you. You 0:06:21.960 --> 0:06:25.159 learned so much from it, And I guess this episode 0:06:25.200 --> 0:06:27.520 today it's like not about shame. There's none of that 0:06:27.839 --> 0:06:30.720 in the Shoes on the Money community anyway. But yeah, 0:06:30.760 --> 0:06:32.920 we're just going to talk through exactly how you can 0:06:32.960 --> 0:06:35.680 get ahead sooner. Okay, So let's get into it then, V. 0:06:35.960 --> 0:06:39.040 What strategies are there for debt prioritization? Oh my god, 0:06:39.080 --> 0:06:40.360 I need a sip of my tea. What is my 0:06:40.440 --> 0:06:41.160 voice doing? Well? 0:06:41.200 --> 0:06:44.440 You have a suplico tea while I explain what these 0:06:44.520 --> 0:06:48.920 strategies are. So strategies for debt prioritization there are millions, 0:06:49.040 --> 0:06:51.880 but I talk about two key methods more often than 0:06:51.920 --> 0:06:55.400 not because I feel like they actually help the most. 0:06:55.520 --> 0:06:58.600 And these two strategies are not my own. I didn't 0:06:58.640 --> 0:07:01.520 create these. I'm absolutely not taking credit for them. I 0:07:01.560 --> 0:07:03.960 don't know who created them because I feel like they're 0:07:04.000 --> 0:07:07.000 so universal when it comes to debt reduction, but they 0:07:07.080 --> 0:07:10.520 work really well. And these two strategies are called the 0:07:10.600 --> 0:07:14.559 Avalanche method and the Snowball method, And I mean sounds 0:07:14.640 --> 0:07:20.520 very like ooh, it's a winter festive episode. But both 0:07:20.560 --> 0:07:22.680 of them actually have nothing to do with the snow 0:07:22.840 --> 0:07:25.720 or winter. But both of them do accelerate the debt 0:07:25.720 --> 0:07:28.680 reduction process in their own ways and give you the 0:07:28.760 --> 0:07:31.640 structure you might be craving to help you get out 0:07:31.680 --> 0:07:35.200 of debt. So the first one is the avalanche method. 0:07:35.440 --> 0:07:39.320 Avalanche avalanche unsure of which is right in Australia, I'm 0:07:39.320 --> 0:07:42.680 sure not. They corrected on that later G. But essentially, 0:07:42.760 --> 0:07:46.560 this method of debt reduction sees you paying the highest 0:07:46.640 --> 0:07:49.760 interest rate first, while still making minierum more payments on 0:07:49.800 --> 0:07:52.080 all other debts. You're not paying them at all, but 0:07:52.160 --> 0:07:55.440 we are aggressively trying to get rid of the debt 0:07:55.520 --> 0:07:58.720 that has the highest interest rate first, and then once 0:07:58.840 --> 0:08:02.120 that's paid off, you work your way down to end 0:08:02.200 --> 0:08:05.280 up paying the debt with the lowest interest rate. So 0:08:05.320 --> 0:08:07.040 there are a number of reasons why you do this. 0:08:07.360 --> 0:08:10.080 So the goodbits using this method means that you will 0:08:10.080 --> 0:08:12.400 pay less in the long run money in because you 0:08:12.400 --> 0:08:15.720 are targeting the debt with the largest amount of interest first, 0:08:15.880 --> 0:08:18.280 so that you're not accruing a lot of other debt 0:08:18.320 --> 0:08:20.760 in the background. And it can also speed up the 0:08:20.760 --> 0:08:24.560 debt repayment process. So by only paying minimum on your 0:08:24.640 --> 0:08:28.600 other debts and aggressively paying one, you're saving the most interest, 0:08:28.640 --> 0:08:31.800 and that's putting you in the most preferable position. A 0:08:31.880 --> 0:08:35.200 couple of downsides there always are. Requires a fair bit 0:08:35.240 --> 0:08:38.520 of discipline, so it's not easy to do these things, 0:08:38.559 --> 0:08:41.520 and that is okay, but it is about commitment, and 0:08:41.880 --> 0:08:45.640 it can stay harder to stay motivated because sometimes the 0:08:45.720 --> 0:08:49.160 debt with the highest interest rate is not necessarily the 0:08:49.160 --> 0:08:51.840 biggest debt you have, So we need to make sure 0:08:51.840 --> 0:08:54.440 that we understand why we're doing this and commit to 0:08:54.480 --> 0:08:56.840 it so that over the long term we get rid 0:08:56.920 --> 0:09:01.640 of it and stay motivated. In comparable, the snowball method 0:09:01.679 --> 0:09:05.000 g is exact opposite. Oh that's a bit dramatic. It's 0:09:05.000 --> 0:09:09.000 not the exact opposite, but the snowball method is basically 0:09:09.280 --> 0:09:12.400 the opposite of the avalanche method, where you pay off 0:09:12.400 --> 0:09:15.840 and target your smallest debt first, so you completely forget 0:09:15.920 --> 0:09:18.360 about the interest rates on all of the debts and 0:09:18.400 --> 0:09:21.880 you just plan on tackling the smallest step first, and 0:09:21.920 --> 0:09:23.839 then you work your way up to the largest s 0:09:23.840 --> 0:09:27.080 deet without taking into consideration any of the interest rates. 0:09:27.480 --> 0:09:30.920 So some people prefer this because there's a number of 0:09:31.000 --> 0:09:33.559 obviously good bits and I'll explain those in a second. 0:09:33.840 --> 0:09:37.040 But some people don't like this because obviously interest rate 0:09:37.120 --> 0:09:40.040 isn't taken into consideration, and that can make people feel 0:09:40.080 --> 0:09:43.199 a bit angsty. So, as I said before, there are 0:09:43.200 --> 0:09:45.880 some good bits. I love the snowball method because it 0:09:45.920 --> 0:09:49.120 helps you nail smaller goals. Sooner you're going to feel 0:09:49.120 --> 0:09:51.800 more motivated. You're going to feel more accomplished because you 0:09:51.880 --> 0:09:54.760 be like, heck, yes, I got one debt smashdown and 0:09:54.800 --> 0:09:56.920 you can move on to the next one. So it 0:09:57.000 --> 0:10:00.160 makes you feel like you are making more progress and 0:10:00.200 --> 0:10:02.839 you are. With the avalanche method. Doesn't mean you are 0:10:03.000 --> 0:10:05.720 or not. It's just usually when you get to close 0:10:05.720 --> 0:10:08.200 your credit card or get to shut your after pay like, 0:10:08.400 --> 0:10:11.640 that's going to feel really good and keep you on 0:10:11.679 --> 0:10:15.000 the right track. One of our best mates Dave Ramsey, 0:10:15.120 --> 0:10:17.600 he's not my best mate gee, but I would like 0:10:17.679 --> 0:10:18.600 to get him on the show. 0:10:18.760 --> 0:10:20.960 You guys should do a collab, we should. 0:10:21.120 --> 0:10:24.360 I think he's pretty picky with who he collabs with, 0:10:24.400 --> 0:10:26.240 but did you know he collabed with our mate Glenn 0:10:26.280 --> 0:10:30.760 James from My millenial on Andrew's podcast on My Millennial Money. 0:10:30.920 --> 0:10:32.480 Really Yeah, when he came. 0:10:32.320 --> 0:10:35.600 To Australia, he hung out with Glenn James, and I'm 0:10:35.600 --> 0:10:38.200 not gonna lie, it's a little bit envious because he's 0:10:38.320 --> 0:10:41.200 known as a bit of a finance whiz in the US. 0:10:41.440 --> 0:10:43.600 In saying that I do want to stipulate, I don't 0:10:43.600 --> 0:10:46.320 agree with all of his advice, and there are some 0:10:46.400 --> 0:10:49.040 things he says that I go, come on, Dave, mate, 0:10:49.160 --> 0:10:53.080 calm down. But he is really inspirational in this area. 0:10:53.200 --> 0:10:55.760 So anyway back to what I was trying to say 0:10:55.760 --> 0:10:59.000 about old mate Dave, he basically says that even though 0:10:59.000 --> 0:11:02.640 the avalanche method should technically see us paying less, the 0:11:02.760 --> 0:11:06.600 snowball method is more effective because personal finance is twenty 0:11:06.679 --> 0:11:11.880 percent head knowledge, which knowledge knowledge. It's not how I 0:11:11.880 --> 0:11:14.800 would have explained it, but you have head knowledge and 0:11:14.920 --> 0:11:18.040 eighty percent about behavior, which we do at Cheese on 0:11:18.080 --> 0:11:20.800 the Money. Absolutely agree with that, and you need some 0:11:20.880 --> 0:11:23.120 quick wins in order to say super pumped enough to 0:11:23.120 --> 0:11:26.600 get out of debt completely, so is not wrong. The 0:11:26.640 --> 0:11:29.520 snowball method is also easy because you don't have to 0:11:29.559 --> 0:11:31.440 do any maths, you don't have to think about the 0:11:31.440 --> 0:11:33.920 interest rate, You don't have to calculate anything. You just 0:11:33.960 --> 0:11:36.600 start with the smallest debt, start smashing it off and 0:11:36.679 --> 0:11:39.800 making as many repayments as you can to that small 0:11:39.840 --> 0:11:42.880 debt to get rid of it, obviously while still making 0:11:42.920 --> 0:11:45.720 minimum repayments on your other debts, please don't neglect them. 0:11:46.280 --> 0:11:48.600 But it just is a little bit simpler because there's 0:11:48.600 --> 0:11:51.600 no working things out or calculating interest rate or how 0:11:51.679 --> 0:11:54.400 much you'll pay over the long term versus how many years. 0:11:54.559 --> 0:11:56.640 So what are the negatives then be So as I. 0:11:56.600 --> 0:11:59.040 Said before, gee, you're gonna end up paying more because 0:11:59.040 --> 0:12:02.800 of the interest factor. But again, it's about motivation and 0:12:02.840 --> 0:12:05.760 feeling like you're smashing it out. And it may be 0:12:05.920 --> 0:12:09.520 a longer journey to becoming debt free, but it's more 0:12:09.559 --> 0:12:12.120 about what are you actually going to be able to 0:12:12.160 --> 0:12:15.559 feasibly commit to. It's not about which one's going to 0:12:15.600 --> 0:12:18.640 save us the most money, because when it comes to debt, 0:12:18.760 --> 0:12:21.640 we actually just need a plan that works for us personally, 0:12:22.080 --> 0:12:24.200 not necessarily works best on paper. 0:12:24.600 --> 0:12:29.520 Yeah okay, so avalanche is harder but more effective, not 0:12:29.559 --> 0:12:33.360 necessarily more effective, but in like on paper, more effective. 0:12:33.040 --> 0:12:35.480 More effective if we work out what that actually means 0:12:35.480 --> 0:12:36.319 on paper. 0:12:36.320 --> 0:12:40.920 Yep, Snowball is potentially easier, but a slower and steadier 0:12:40.960 --> 0:12:42.240 method of going about things. 0:12:42.480 --> 0:12:44.240 How do you decide which one is right for you? 0:12:44.840 --> 0:12:48.160 Well, I prefer doing it based on which name you 0:12:48.200 --> 0:12:51.440 think is cuter, So like I think snowball soft, like 0:12:51.480 --> 0:12:53.360 Snowball's fun. It was the name of the Cat and 0:12:53.400 --> 0:12:57.079 the Simpsons, like it just makes sense. Avalanche sounds aggressive, 0:12:57.200 --> 0:13:00.800 so like I don't go with it, but more serious. Gee, 0:13:00.800 --> 0:13:03.200 it comes down to your personality. It comes down to 0:13:03.320 --> 0:13:06.320 whether you're someone who has strong discipline to be able 0:13:06.320 --> 0:13:09.640 to put that extra cash towards debt repayments. So if 0:13:09.640 --> 0:13:12.680 that's you, I'd probably choose the avalanche method because you're 0:13:12.920 --> 0:13:15.560 on top of it and you're actually motivated by that. 0:13:15.760 --> 0:13:18.480 But if you're someone who struggles with self motivation, which, 0:13:18.559 --> 0:13:20.960 to be honest, I think I would be a snowballer, 0:13:21.120 --> 0:13:24.800 not an avalancher, because even though it makes logical sense, 0:13:25.200 --> 0:13:28.000 I just like progress. So sometimes if I see that 0:13:28.040 --> 0:13:30.640 I owe thirty bucks or something, I'm far more likely 0:13:30.720 --> 0:13:32.920 to just want it gone and then I feel accomplished. 0:13:32.960 --> 0:13:35.240 I'm the type of person as well. G When I'm 0:13:35.240 --> 0:13:37.360 writing a to do list, I write things I already 0:13:37.400 --> 0:13:37.959 have done. 0:13:37.760 --> 0:13:39.800 The same same then you highlight them. 0:13:39.960 --> 0:13:42.080 So if that's won you resonate with putting to do 0:13:42.200 --> 0:13:44.800 list items on the to do list that you've already done, 0:13:44.840 --> 0:13:48.320 I'd probably say you're a snowballer, So completely up to you. 0:13:48.720 --> 0:13:51.840 And just like sunscreen, because we obviously are very big 0:13:51.880 --> 0:13:54.440 advocates of sunscreen in this community, where they say the 0:13:54.480 --> 0:13:57.480 best sunscreen is the one you use. The same goes 0:13:57.520 --> 0:14:00.200 for debt reduction methods. The best one is just one 0:14:00.200 --> 0:14:01.000 that you're going to stick to. 0:14:01.480 --> 0:14:04.720 I love that, Okay. So that is the snowball and 0:14:04.760 --> 0:14:08.319 the avalanche methods sorted fee. So they're the main methods 0:14:08.360 --> 0:14:11.640 of debt prioritization and paying down our debts. But what 0:14:11.760 --> 0:14:16.640 about debt consolidation Is that is that a method as well? Gee, 0:14:16.720 --> 0:14:19.160 I guess it's not really prioritizing. It's really just prioritizing 0:14:19.160 --> 0:14:20.320 all of them and making them one. 0:14:20.680 --> 0:14:23.520 And yeah, Cook did an entire no I love this, 0:14:24.040 --> 0:14:27.240 We did an entire episode on debt consolidation. So do 0:14:27.320 --> 0:14:29.280 you should be a wizard on this by now? Like, 0:14:29.520 --> 0:14:34.120 come on, Georgia King. But debt consolidation is essentially if 0:14:34.120 --> 0:14:36.920 you didn't listen to that episode. Please do, but if 0:14:36.960 --> 0:14:38.920 you didn't, it's where you take out a loan to 0:14:38.960 --> 0:14:41.320 cover all of our debts so that we're just working 0:14:41.360 --> 0:14:45.080 out paying one debt instead of multiple. And there are 0:14:45.080 --> 0:14:47.760 a number of reasons we would do this. So one 0:14:48.000 --> 0:14:51.440 because personal loans and credit cards often carry higher interest rates. 0:14:51.680 --> 0:14:54.640 So the average of a credit card usually sits between 0:14:54.680 --> 0:14:58.480 fourteen and twenty two percent interest rate. A personal loan 0:14:58.600 --> 0:15:01.800 is probably sitting around fourteen if it's unsecured, maybe a 0:15:01.840 --> 0:15:04.480 little bit less if it is a secured personal loan. 0:15:04.640 --> 0:15:07.520 But essentially, when you roll them all together, you take 0:15:07.560 --> 0:15:10.120 out what's called a debt consolidation loan, and it's essentially 0:15:10.200 --> 0:15:12.480 a personal loan that just covers all of those debts, 0:15:12.520 --> 0:15:15.200 pays them back, and you just have one in one place. 0:15:15.680 --> 0:15:17.680 So a good example is, if let's say you have 0:15:17.760 --> 0:15:20.400 three different credit cards, all with different levels of debt 0:15:20.440 --> 0:15:23.640 associated with them and different interest rates, and they're being 0:15:23.640 --> 0:15:26.800 paid at different times of the month. Debt consolidation would 0:15:26.800 --> 0:15:29.440 mean it swops in, it pays off all of those 0:15:29.520 --> 0:15:32.800 for you, gives you one single loan that you owe 0:15:32.840 --> 0:15:35.960 interest on. It's often a lower rate of interest, and 0:15:36.320 --> 0:15:39.400 you just pay that off once a month. The benefits 0:15:39.440 --> 0:15:41.320 of this is it can feel so much more free, 0:15:41.680 --> 0:15:43.400 Like if you're someone who is in a bit of 0:15:43.440 --> 0:15:46.760 a pickle, lots of debts can feel really overwhelming and 0:15:46.800 --> 0:15:49.880 it does feel like you're pulling them all together, taking control, 0:15:49.920 --> 0:15:53.760 and you just have one repayment to make it's less overwhelming, 0:15:53.880 --> 0:15:55.840 and it just puts you in a position where you 0:15:55.840 --> 0:15:59.400 feel a little bit more empowered to get debt free. 0:16:00.000 --> 0:16:01.960 You might be able to manage a law interest rate, 0:16:02.000 --> 0:16:03.800 which is a bit of a money win. So that 0:16:03.840 --> 0:16:06.120 means that you are going to be saving money over 0:16:06.160 --> 0:16:10.120 the long term. And it's important to understand that it's 0:16:10.160 --> 0:16:12.560 one less admin task as well. So at the end 0:16:12.560 --> 0:16:14.800 of the day, if you're paying lots of different debts, 0:16:15.280 --> 0:16:17.720 let's be honest, doing one thing instead of three or 0:16:17.760 --> 0:16:19.560 four kind of just makes sense. 0:16:19.640 --> 0:16:23.560 Gem okay, so be that that actually does sound quite good. 0:16:23.600 --> 0:16:26.800 But I remember from that episode that there were some 0:16:26.960 --> 0:16:28.760 down downsides. 0:16:28.480 --> 0:16:30.640 Can't remember what they are, so. 0:16:32.000 --> 0:16:34.840 I'm sorry, honestly, g King, you have been on this 0:16:34.920 --> 0:16:37.680 show long enough to be a financial whiz yourself. But 0:16:37.760 --> 0:16:40.560 as you were asking for, when it's not a good idea, 0:16:40.680 --> 0:16:42.840 there are a number of downfalls and we just need 0:16:42.880 --> 0:16:44.640 to be aware of them. It doesn't mean we don't 0:16:44.680 --> 0:16:47.000 do it. So it can take us longer to pay 0:16:47.000 --> 0:16:50.200 off one large loan instead of you a multitude of 0:16:50.320 --> 0:16:53.320 little debts which could ultimately cost us more. We just 0:16:53.360 --> 0:16:56.800 need to take it into consideration. It can leave us 0:16:56.840 --> 0:16:59.240 a bit tempted to spend more and leave you in 0:16:59.320 --> 0:17:01.480 a deeper level of debt if you do go and 0:17:01.520 --> 0:17:04.040 get another credit card. So if you don't have a 0:17:04.040 --> 0:17:07.159 lot of self control, I would be really careful about 0:17:07.160 --> 0:17:10.720 this because consolidating it makes it feel like it's going 0:17:10.760 --> 0:17:13.760 away even though it's still there. It's just more manageable 0:17:13.800 --> 0:17:16.520 and more palatable. So you might go, you know what 0:17:16.560 --> 0:17:18.840 I've got that that's really manageable. I'm going to go 0:17:18.920 --> 0:17:22.440 get another credit card. Yeah. Not a good idea, Yeah, yeah, right. 0:17:23.040 --> 0:17:25.840 And there are a few scammers in this space, so 0:17:25.960 --> 0:17:28.200 please be careful if you do go down this path, 0:17:28.400 --> 0:17:30.760 please please please make sure you do so with a 0:17:30.840 --> 0:17:35.600 legitimate mainstream lender, as there are a few scammers out 0:17:35.640 --> 0:17:38.040 there that do make you pay upfront freeze to set 0:17:38.119 --> 0:17:40.080 up loans and then they never follow you up and 0:17:40.080 --> 0:17:41.840 give you the money that is required to pay off 0:17:41.840 --> 0:17:43.680 all your spoiler debts, which means that you're in a 0:17:43.680 --> 0:17:46.520 bigger piogle than you were before. And if you do 0:17:46.640 --> 0:17:49.200 have a home loan, it could be impacted if things 0:17:49.240 --> 0:17:52.280 go pair shaped with your debt consolidation loan. We have 0:17:52.359 --> 0:17:54.119 spoken about this before and it's a bit of a 0:17:54.160 --> 0:17:56.760 shout out to an old show partner that you know. 0:17:56.880 --> 0:17:58.920 I actually still keep in contact with it. I haven't 0:17:58.920 --> 0:18:01.200 worked with in a little while, but hopefully we will 0:18:01.240 --> 0:18:03.880 soon because I love them. But our friends at Wiser 0:18:04.080 --> 0:18:08.080 so WISR. They do a lot of debt consolidation and 0:18:08.280 --> 0:18:11.120 also help advise on what the best outcome would be 0:18:11.200 --> 0:18:14.120 and I really like what they do. Obviously, you can 0:18:14.119 --> 0:18:16.560 also call the National Debt Helpline and all of that 0:18:16.680 --> 0:18:19.080 because they are really helpful. But when it comes to 0:18:19.160 --> 0:18:23.640 debt consolidation, Wiser do a really good job. Again, that's 0:18:23.680 --> 0:18:26.359 not a sponsored mentioned. It's just good eggs doing good things, 0:18:26.359 --> 0:18:27.959 and you guys deserve to know about it. 0:18:28.520 --> 0:18:28.960 Brilliant. 0:18:29.560 --> 0:18:31.760 Are there any other methods that people use or are 0:18:31.760 --> 0:18:32.440 they the main. 0:18:32.359 --> 0:18:34.359 They're pretty much the main methods. I mean, there's a 0:18:34.359 --> 0:18:36.119 million different ways you could do it. You could put 0:18:36.160 --> 0:18:38.200 a chart on your fridge, during app on your phone, 0:18:38.320 --> 0:18:40.679 or you know. There's lots of different ways that you 0:18:40.720 --> 0:18:43.280 could get rid of debt, but those are the two 0:18:43.400 --> 0:18:46.679 main ways that I see people doing it and I 0:18:46.760 --> 0:18:50.320 talk to clients about. And then obviously debt consolidation is 0:18:50.359 --> 0:18:53.159 something on the top of that that you go, is 0:18:53.200 --> 0:18:56.200 it actually better to do that? But with debt consolidation, 0:18:56.600 --> 0:18:58.360 one thing to be aware of is if you are 0:18:58.520 --> 0:19:02.080 up the river of debt pretty far, sometimes it won't 0:19:02.119 --> 0:19:05.520 apply to you. Sometimes they'll say, look, we're not willing 0:19:05.560 --> 0:19:07.760 to take on that level of risk. So if you've 0:19:07.800 --> 0:19:09.639 got a few credit cards and you know you're in 0:19:09.680 --> 0:19:11.800 a bit of a people, yes, debt consolidation might be 0:19:11.800 --> 0:19:14.760 an option. But I have worked with clients and people 0:19:14.800 --> 0:19:18.439 before where we've gone to consolidate a debt and the 0:19:18.480 --> 0:19:20.840 banks have said, no, thank you. Come back once you've 0:19:20.840 --> 0:19:23.080 gotten a fair bit of debt down so that we 0:19:23.119 --> 0:19:25.160 can do it then, because we're not willing to take 0:19:25.200 --> 0:19:27.480 the risk right now. So don't feel bad if that 0:19:27.640 --> 0:19:29.439 is you. And if it is you and you're feeling 0:19:29.480 --> 0:19:32.639