#5 Debt Destroyer

STRATEGY FIVE - DEBT DESTROYER

The Debt Destroyer is often used for people trying to get their first property or people who are earlier in their investment journey.

Typically, these borrowers are younger and will often have several small debts.

By small debts, I mean things like credit cards, overdrafts, hire purchases, car loans, personal loans, GEM Visas.

Younger borrowers will use these to buy what they need when they don’t have a high enough income or surplus funds to save for that purchase.

E.g. a student might use one of these to buy a new laptop, or a young couple who have moved into their own property (renting) may get a hire purchase to buy furniture etc.

**Confession** - even I fell into this trap as a youngster.

As soon as I got my first full-time job (BNZ), I took out a personal loan to buy a car!

However, what happens when you have many small debts?

It becomes hard to stay on top of, and there is a risk of missing some of the repayments because there are so many.

That can stop you from borrowing as the bank doesn’t think you can manage your money (what’s called poor account conduct).

That’s where the debt destroyer comes in.

How Does It Solve The Problem?

Improves account conduct. Shows the bank that you can manage your money while reducing your financial stress by bringing many payments down to one.

What Do I Need To Use This Strategy?

• You ideally need to have 3 or more debts (of those listed above) that require regular repayments
• You will benefit from this strategy even more if you struggle to juggle all your payments.

So How Does It Work?

The Debt Destroyer calls for you to merge your small debts into a single loan.

This will give you one payment per month to manage, so you know when it needs to be paid, and you can plan for it.

This is often referred to as debt consolidation.

It is where you apply for a loan, which is large enough to pay off all your other smaller debts. You get the money, pay off the debts, and cancel all your now paid-off credit cards, overdrafts and other liabilities.

Then you are left with a single loan.

This last step is crucial.

You don’t want to take on a new loan; use it to pay off your old credit card and then rack up more debt on that same credit card.

What Are The Steps Required?

• If you already own your own home, apply to increase the size of your mortgage.
• Once the money is approved, use the money to pay off your debts
• Then cancel your credit cards and overdrafts, or other facilities.
• If you don’t have a home yet, or don’t have enough equity to increase your mortgage, apply for a personal or debt consolidation loan. Then follow the steps above.