Seven steps to help you destroy your debt
Ditching debt might seem like an impossible task amid ever-rising household costs, but Effie Zahos says there are simple strategies to get the job done.
The financial commentator and author's third book, which launches on February 2, aims to take a positive approach to help people move forward by repaying debt and then building wealth through investment.
"If you are in debt you need to start from square one and ask yourself 'how did I get here, and why?'" Zahos says.
"If you don't answer the how and why, you will find yourself in the same situation. For example, you pay off the credit card then six months later you're back with the monkey on your back because you didn't address the question in the first place."
In Ditch the Debt and Get Rich, Zahos recommends creating a "bare-bones budget" to escape the vicious cycle of living from pay to pay.
This budget only includes expenses you need to survive: mortgage repayments or rent, utility bills, groceries, insurance, phone and internet, debt repayments, medications, childcare and school costs, transport costs and saving to build an emergency fund.
It should not include dining out or takeaway meals, entertainment, holidays, non-essential clothing and household items, personal care such as manicures, and hobbies.
"Live on your bare-bones budget temporarily," Zahos writes.
"Even if you feel that you could possibly add in a few nice-to-haves, I would suggest living on your bare-bones budget for a few months - at the very least until you have built up a decent emergency fund."
Zahos says she wanted her book to include positive affirmations by starting every chapter with "I can" and draw on her experiences from 25 years as a personal finance editor, first at Money magazine and now as editor-at-large at research group Canstar.
"A lot of it is driven by my own behaviour as well," she says.
"We have for so long carried so much debt - life moves fast, and we want so much. We have this monkey on our back and feel we will never get rich."
Zahos says it's important to qualify the word "rich".
"For me it's the best financial version of yourself - it's the financial freedom to do what you want."
That doesn't amassing millions of dollars. Many people live comfortably on $50,000 a year in retirement through a combination of the age pension and their own savings.
Others fail to build wealth through investing because they are too scared to start.
"Fear of jumping in can be as bad as the fear of missing out," Zahos says.
It's easy to start small through micro-investing in shares, exchange traded funds and other assets.
"If you are not happy with yourself financially today, promise yourself to make one change," Zahos says.
"It may be 'I'm going to sacrifice $50 per pay this year. Do it. Take action.
"If you don't make one change, you will find yourself in exactly the same position this time next year."
ACTION PLAN FOR REPAYING DEBT
• Stop using your credit card.
• Make a list of all outstanding debts, including interest rates and balances owing.
• Create a budget.
• Talk to lenders to see if you can negotiate better rates.
• Consider if different payment options, balance transfer cards or debt consolidation works for you.
• Talk to a financial counsellor if you think you need extra help.
• Try to change your behaviour so you don't end up in the same position.
Source: Ditch the Debt and Get Rich
Originally published as Seven steps to help you destroy your debt