Debt repayment plan
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How to create a Debt Repayment Plan

Budgeting, Finance, Superannuation

Debt can be overwhelming and stressful, but creating a plan to pay it off can help ease that burden. In Australia, household debt is on the rise, with the average household owing over $260,000 in 2021, according to the Australian Bureau of Statistics. If you’re struggling with debt, here are some tips and strategies for creating a debt repayment plan.

Create a Budget

The first step in creating a debt repayment plan is to create a budget. This will help you understand where your money is going and where you can cut back on expenses. List all of your income and expenses, including bills, rent or mortgage payments, groceries, and any other expenses. Once you have a clear picture of your finances, you can start to identify areas where you can save money.

Prioritise High-Interest Debt

If you have multiple debts, it’s important to prioritise the ones with the highest interest rates. These debts are costing you the most money in interest charges, so paying them off first will save you money in the long run. Make minimum payments on all of your debts, and put any extra money towards the one with the highest interest rate.

Automate Payments

Automating your debt payments can help ensure that you don’t miss any payments and incur late fees. Set up automatic payments for the minimum payments on all of your debts, and then add extra payments as you can afford them. This will also help you stay on track with your debt repayment plan.

Choose a Repayment Strategy

There are different methods of debt repayment, such as the snowball and avalanche methods. The snowball method involves paying off the smallest debt first, while the avalanche method involves paying off the debt with the highest interest rate first. Choose the method that works best for your situation, and stick to it.

Case Study

Let’s compare two scenarios to see how creating a debt repayment plan can make a difference.

Scenario 1: Sarah has $10,000 in credit card debt, with an interest rate of 20%. She is making minimum payments of $200 per month, but is struggling to make progress on paying off the debt.

Scenario 2: John has the same amount of credit card debt, but has created a debt repayment plan. He is making minimum payments of $200 per month, but has also cut back on expenses and is putting an extra $200 per month towards the debt. He is using the avalanche method, and has prioritised the credit card with the highest interest rate of 25%.

After one year, Sarah will still have $8,360 in credit card debt, and will have paid $1,440 in interest charges. In contrast, John will have paid off $4,800 of his debt, and will have saved $1,200 in interest charges.

Creating a debt repayment plan can make a big difference in your financial situation. By creating a budget, prioritising high-interest debt, automating payments, and choosing a repayment strategy, you can take control of your debt and work towards becoming debt-free. If you need help creating a debt repayment plan, speak with our advisers who can provide guidance and support.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

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Super in your 30s: It’s important to squeeze it in!

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If you are in your thirties, chances are life revolves around children and a mortgage. As much as we love our kids, the fact is they cost quite a lot. As for the mortgage, this is the age during which repayments are generally at their highest, relative to income. And on top of that, one parent is often not working, or working only part time. Even if children aren’t a factor, career building is paramount during this decade. Are you really expected to think about super at a time like this? Well, yes, there are a few things you need to pay attention to. Short-term plans As careers start to hit their strides, the thirties can be a time for earning a good income. If children are not yet in the picture, but are part of the future plan, then it’s an excellent idea to squirrel away and invest any spare cash to prepare for a drop in family income when Junior arrives. Just remember that any savings you want to access before retirement should not be invested in superannuation. Long-term comfort Don’t be alarmed, but by the time a 35-year-old couple today reaches retirement age in 32 years’ time, the effects of inflation could mean that they will need an income of about $164,287 per year to enjoy a ‘comfortable’ retirement. If you are on a 30% or higher marginal tax rate, willing to stash some cash for the long term, and would like to reduce your tax bill, then consider making salary sacrifice (pre-tax) contributions to super. For most people super contributions and earnings are taxed at 15%, so savings will grow faster in super than outside it. Growing the nest egg Even if you can’t make additional contributions right now there is one thing you can do to help achieve a comfortable retirement: ensure your super is invested in an appropriate portfolio. With decades to go until retirement, a portfolio with a higher proportion of shares, property and other growth assets is likely to out-perform one that is dominated by cash and fixed interest investments. But be mindful: the higher the return, the higher the associated risk. Another option for lower income earners to explore is the co-contribution. If you are eligible, and if you can afford to contribute up to $1,000 to your super, you could receive up to $500 from the government. Let your super pay for insurance For any young family, financial protection is crucial. The loss of or disablement of either parent would be disastrous. In most cases both parents should be covered by life and disability insurance. If this insurance is taken out through your superannuation fund the premiums are paid out of your accumulated super balance. While this means that your ultimate retirement benefit will be a bit less than if you took out insurance directly, it doesn’t impact on the current family budget. However, don’t just accept the amount of cover that many funds automatically provide. It may not be adequate for your needs. Whether it’s super, insurance, establishing investments or building your career, there’s a lot to think about when you’re thirty-something. It’s an ideal age to start some serious financial planning, so talk to a licensed financial adviser about putting a plan into place.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Who gets your super?

Who gets your super?

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Who decides what happens to your superannuation savings when you die? You may think that you do, but that isn’t always the case. The ultimate decision may be made by someone you don’t even know – the trustee of your superannuation fund. Let’s look at how you can have greater control. Binding death benefit nominations The most certain way to direct payment of your superannuation death benefit is by making a binding death benefit nomination. The nominated beneficiaries must be ’dependants’ – a spouse, de facto spouse, child or financial dependant – or a legal personal representative (i.e. the executor or administrator of a deceased estate.) If the nomination has been properly signed and witnessed, and is still current at the date of death, then the trustees of the superannuation fund must pay the death benefit to the nominated beneficiaries. Unlike Wills, valid binding superannuation nominations are unlikely to be overturned by a court, so they provide great certainty. It is up to the trustees of each superannuation fund to decide whether or not to allow binding nominations, so they aren’t available to everyone. Although some funds offer non-lapsing binding death benefit nominations, most are only valid for three years, so it’s important to check yours and ensure it remains up-to-date. Trustee’s discretion The trustee is under a legal obligation to pay a death benefit to the member’s dependants, and in most cases, benefits will be paid in a way that is consistent with the wishes of the deceased member. However, it is possible the trustee may recognise a wider range of dependants than the member would have liked – including a separated spouse. In some cases, the member’s preferred beneficiary may not meet the legal definition of a dependant. This may apply to parents. In the absence of any dependants and a legal personal representative, the trustee may exercise their discretion, and pay the benefit to a non-dependant. While dependants receive lump-sum death benefits tax free, the rate of tax payable by non-dependants can vary from nil to 30% depending on the components of the superannuation payment. Superannuation pensions The situation is a little different if the member has already retired and is drawing a superannuation pension. With pensions, it is common to nominate a surviving spouse as a reversionary beneficiary. This means the pension payments will continue to be paid to the nominee, either until their death, or until the funds run out. If the reversionary beneficiary dies, any remaining balance is then paid out as a lump sum death benefit according to the type of nomination they have made. Good advice required Increasing levels of wealth being held via superannuation and the nomination of beneficiaries should be made in the context of a comprehensive estate plan. This includes taking into account the way superannuation death benefits are taxed when paid to different types of beneficiaries. We can help you make the right decision.   The information provided in this article is general in nature only and does not constitute personal financial advice.

The challenges of being a Carer

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Updated on Aged Care, Budgeting, Centrelink

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It’s not too late for super planning in your 60s

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Updated on Education, Retirement, Superannuation

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Push the super pedal down in your 50s

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Updated on Education, Retirement, Superannuation

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Pay attention to super in your 30s

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Updated on Education, Superannuation

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