Debt reduction v Deposit saving.

Hi Todd,
Personally I'd pay off your debt first starting with the highest rate (16.5%). But I'm no finance guru – to me it just seems like you'll get more bang for your buck by paying off that loan and therefore saving 16.5% – versus – if you put this money on a house instead you'd only be earning ~7-10%. So saving 16.5% seems better to me.

however it could be good to get your foot in the door with real estate.

With all that debt could you afford to service a mortgage as well?

Have you looked into the dhoas subsidy?

I agree – I doubt  you'd be in a position to take on more debt at the moment – and I'd be surprised if the bank gave you a home loan at this point.  They'd want to see that debt cleared down first, I'd think.

Clear those loans, starting with those charging the most interest.  And read up as already suggested.  I'd take a look at your spending patterns as well to help you understand which items you purchase that you don't really need, and the bottom line of how much it costs to be you.  Try putting everything you pay for into a spreadsheet for a year.  It'll shock you how much gets spent on silly things and how quickly they mount up.  Maybe you have a coffee habit that costs you $50 a week, for instance.

I'm worried about your credit card situation – be aware that you might already have black marks on your credit file, which will make it harder for you to get a home loan when you come to it.  Basically get rid of your debts asap and steer clear of being in such a situation again, is my advice.

If you are buying things, you might as well buy them on a credit card that earns frequent flyer points.  Then at least you'll eventually get a holiday out of it.  But I live by the rule of NEVER buying anything on my credit card unless I actually already have the money to pay it back. 

The reasons I pay for things on credit are:
1. to get frequent flyer points
2. because in some cases, it is the only type of card that can be used for the transaction
3. to allow money that I already have stay in my homeloan offset account for another month or so and save interest for me there

Anyway that's all from me for now – it is awesome to see that you realise  you need and want a battle plan, and have the goal of GOOD debt (ie property debt) in focus. 

If you can't easily and cheaply roll all debts into one loan that has lower rate then I'd be looking at making the minimum repayment on all loans and paying any extra I had off the loan with the highest interest rate  (16.5%).  Once this one is paid off I would start  paying all extra money off the next highest rate loan and so on until got all payed off.

G`day Todd,
         
                     Im sorry I can`t offer you any financial advice as i am no expert myself. But what a can say is that im glad your eyes have been opened to the world of property investment. im also glad to hear about someone else out there just starting out in investing, As i too am 22 in the Army (lets not get into any which service is better arguements on here please Ha Ha Ha.) and Just starting out in the game. Sorry thats all that I have for you, And that i wish you the very best with your future investing mate.

Regards,

Drew

Todd, from your statement it appears that you are  not reducing the principal amount that you owe, so this extra money that you are paying on that loan is effectively doing nothing. You need to contact the loan provider and see whether the tems can be changed in some way to allow this extra money to reduce the rpincipal amount. If this is not possible or incurrs penalty charges then focus on paying the other debts that allow the principal to be reduced by extra payments such as the credit card debt.

cheers

Sonya

Hi Todd,

Awesome you are getting your head around your situation

There is a free weekend seminar on in sydney in a couple of weekends time.  You can book your place here; https://www.tgrcashflow.com.au/book

If you attend a bunch of free seminars and learn one or two things at each, then that's got to be a good thing.  They are also great places to network with other people and hear what they are doing.

Hey Todd and Drew

I have been in the Army for close to 14 years now and am well on my way with property investing.  I purchased my first property when I was 22 back in 2000 and it went really well for me and I just want to do more.

With respect to your debts Todd like everyone else has mentioned if you can get on top of them ASAP and consolidate them or just start with the hghest interest rate either way at $750 F/N you should get ontop of them quick smart.  The other side to the coin is that if you do not default on the you should have a good credit rating afterwards which will help you out.  If, after your loan repayments and living expenses have been paid,you have some money left place it in a ubank account etc so you have some savings behind you.  Good for things like seagoing allowance or field pay.

For both of you I recommend getting into an IP early on in your career and before getting a PPOR.  While you are entitled to either RA or a DHA house the money saved in not paying market rent will cover the holding cost of 2 IP.  While if you buy a PPOR, even with DHOAS, at your stage of your career it will end up being very expensive in that first year or years depending on which strategy you follow.  Also, with housing assistance, if you are deployed you can minimise your property cost to nil while you are away, this allows you save more money to be placed in say a mortgage offset acc for purchasing your own home.  I really had no plan but new that I had to do something so I purchased my first IP ad lived in the lines then rented for 7 years untill I had enough equity to purchase my own home.  I managed to save the deposit for my first place and since then have always kept my LVR under 80% .  It is a little more difficult now though and I suggest, if it is possible, get a leg up by using a relations equity to help raise the deposit for a property.  At least this way you can get into the market earlier and you can start working on the LVR untill the property does not require any security. 

There is another strategy that can be done but if you would like to kow more about that it will have to be via PM.

Hi Todd, From your statement it appears that even though your are paying more than what you are required to pay every month, your principal (The original amount that you borrowed) is not being reduced. for example. lets say you originally borrowed $10,000 and have to repay $250 per month. For the first few years this amount is only paying the interest component of the loan not usually any of the principal. Now if you choose to pay $500 per month some loans will reduce the principal by the extra amount you have paid. Now bringing the principal down to $9,750. Therefore your interest that you pay will also be slightly reduced because the amount of money outstanding is less. I am not very good at explaining this. The best suggestion I can give is for you to call the loan provider and ask them directly "If I pay more than expected payment per month does this reduce the principal of my loan? " Also ask "can I pay the loan off sooner? Are there any penalties for doing so? "

Sorry I couldn't explain it better, when I reread this post it doesn't explain it as clearly as I would hope.

cheers

Sonya