Many personal finance writers like to make the distinction between ‘good debt’ and ‘bad debt’. ‘Good’ debt may sound like wishful thinking to many (after all, a true frugal person would consider all debt to be bad, right?) but understanding the difference between the so called good and bad types of debt can affect your financial decision and long term relative wealth.

What is good debt?

‘Good debt’ usually refers to debt incurred to in order to make investment purchases. Using debt to purchase appreciating or income generating assets is usually referred to as leveraging. For example, a mortgage on an investment property that either brings in cash flow or is expected to increase in value is considered good debt.

(more…)

The presents are all unwrapped, the Christmas ham (or Chrissy prawns) are all eaten, and you’ve scoured the sales bins for that had-to-have bargain.

Then the credit card statement comes. And the pain begins.

I read somewhere (I can’t find the reference now) that it takes the average person six months to pay off their Christmas credit card debt.

That’s six months of playing catch up. Six months of not saving for the family holiday or, dare I say, next Christmas. Because starting a Christmas fund at the beginning of the year is the best way to avoid the after Christmas hangover.

But now that it’s December, what can we do to avoid racking up Christmas debt?

(more…)

This is Part One of a three part series on using excel for loan calculations for beginners. I’ve used Excel 2007, but all calculations can be performed just as easily on earlier versions.

In Part One we will set up our loan or amortisation table, in Part Twowe’ll tweak some of the formulae and pull out some information into a mini report and run some scenarios, and Part Three we will link our results in our mini report to our budget and have a look at how running scenarios will affect our cash flow.

Check out the PMT tutorial before starting this one to create the initial data table.

Of course, making loan calculations can be done easily using free online loan calculators, but that’s not as fun as doing it yourself in excel, and this way you can link your information into your budget to run some dynamic financial scenarios.

I’ll start with the same information from the PMT exercise. All results are based on the assumption that the interest rate remains fixed throughout the entire loan term and that interest is calculated monthly and payments made monthly. It does not take into account bank fees.

Then we’ll add some headings for the amortisation table.

(more…)

Photo by mommamia

Yesterday, I wrote about the snowballing method of debt reduction. Chewing away at your debt consistently using the snowball method is a great way to accelerate debt repayment, but what if you want to get rid of your debt quicker?

On top of building snowballs, you could cover your debt with snowflakes. This term was made popular by the blog I’ve Paid for this Twice Already. It involves paying extra amounts here and there off your debt.

The idea is that no amount is too small. It could include loose change hanging around the house, money saved on the groceries, the sale of household stuff on eBay, tax refunds, bonuses, windfalls, overtime, money from an extra job, and any other extra cash. All of these small amounts go straight to paying off the debt.

(more…)

Photo by kamshots

One of the most popular debt reduction plans is the snowball method. Almost anything you read on reducing debt will include an explanation of the snowball method, whether it uses that name or not. The method involves paying the minimum monthly balance on all debts except for one, to which you consistently pay a set amount over and above the minimum repayment amount. Once this debt is paid off, you apply your repayment amount to the next debt and so on.

Which debt do you make extra repayments on first?

There are several ways to approach the snowball method of debt reduction, but paying off the debt with the highest interest rate first makes the most mathematical sense. Paying off debts in order of interest rate is going to save you the most time and the most money.

I’ve used this method in the past (although I hadn’t heard of the snowball reference then) and it’s a powerful way to chew through debt. Here’s an example of how it works:

(more…)

Just a few links on debt from some of my favourite sites. This month I’ll be looking at ways to cut debt. 

Credit Card Debt

How to get out of Credit Card Debt by Frugal Dad

Wipe out Your Credit Card Balance by Wise Bread

Debt Psychology

What is your Debt Philosophy by My Two Dollars

Being in Debt Sucks by Frugal Dad

Four Mindsets to Break Free from Debt by I’ve Paid for this Twice

Should Repaying Debt be an Obsession by Get Rich Slowly

We Don’t Believe in Debt by I’ve Paid for this Twice

Dealing with Debt by The Home I Own

Debt Reduction

Getting Started on Snow flaking by the Simple Dollar

How I Paid over $120,000 in Debt in 52 Months by The Wisdom Journal

When Stranded in a Forest of Debt Just Keep Chopping by Frugal Dad

Dirty Secrets of Debt Reduction by Get Rich Slowly

Paying off Debt and Saving Money at the Same Time by My Two Dollars

Debt Mistakes

Seven Brainless Borrowing Behaviours by Free Money Finance

Has your Financial Ship been taken Hostage by one of these Pirates? by The Wisdom Journal

Is there Such Thing as Good Debt?

Good Debt, Bad Debt By Wise Bread

Fighting with Good v’s Bad Debt by My Two Dollars

Being Debt Free

20 Things that will Rock about Being Debt Free by No Credit Down

The Road to Being Debt Free by No Credit Down

Debt Repayment or Savings?

Your Emergency Fund or Your Debt by Lifehacker

Suze Orman says Stop Paying Off Debt by Consumerism Commentary

Photo by Joshua Davis

Does your money dribble out of your pocket? I know mine does. A few dollars here, a couple of dollars there doesn’t seem like much, right? Enter the ubiquitous “latte factor”. $3 on  a cuppa, how could that possibly effect my long term financial plan?

So I thought I would do a little maths. $3 a day on coffee (or other little indulgence), 5 days a week equals $780 a year.

This may or may not seem like much but when the power of compounding is applied, that’s when things start getting interesting.

Just say you apply these little extra amounts to your mortgage over the course of the loan. What effect does the “latte factor” have on your mortgage? A few more calculations:

(more…)