Get out of Debt

Welcome to the Get Out of Debt page. I do hope you find this information useful. Of course the best way to become debt free is to not get into debt in the first place. My hope is that after reading these pages you will be inspired to create your own wealth and stay out of debt for life.

Lets start with some truths. Currently if you want to get out of debt you really only have five options.

  1. Pay it back
  2. Enter into an arrangement with the creditor/debt collector
  3. File for bankruptcy or another insolvency procedure
  4. Hope it gets written off due to hardship
  5. Wait for the statute of limitations to pass if you are lucky.

Lawyers and accountants will tell you to file for bankruptcy or if your debts are less than $40,000.00 you could file for the No-asset procedure. (NAP) This is similar to bankruptcy except it only lasts for one year rather than three years. A company bankruptcy is referred to as a liquidation.

The surest way to get out of debt is to not get into debt in the first place. Once you become indebted to anyone and as long as the debt is outstanding you are never debt free. Except for Bankruptcy or another insolvency procedure, and if you don’t have any payment arrangement in place, there is no restriction on any creditor or bank or debt collector to have to cease collection actions against you ever and once you die, depending on the terms of contract, they can take the money from your estate. You may ask about the statute of limitations. All a creditor has to do is to pay a small fee to the courts and continue the collection efforts against you. This can be done indefinitely.

Bankruptcy also stays with you for life. Some banks, creditors and employers will ask if you have ever had a bankruptcy or insolvency procedure. There is no clean slate. The footprint stays with you for life. The three years is the term that you can’t engage in some activities while you are bankrupt or incur debt of more than $1000.00. Your debts are wiped and bankruptcy remains on your credit report for 7 years.

So how do you move forward with debt and you don’t want to to file for bankruptcy. You can in a fashion, but its really tough. You will also find out that banks and collectors will stop at nothing to take your money. They will use illegal and unethical practises to continue to force further debt against you. The banks are especially lucky. There is a substantial code of silence that surrounds them. They will even go so far as to falsify and forge documents with our courts and once you agree or acknowledge any debt, that will be used against you permanently. You cannot win because the laws are written against the debtor in favour of the creditor. Agency law and the new lending and hardship codes are also written in favour of the creditor. But I’ll go into that in more detail in the book. Lets look at what you can do to get out of debt before you reach the point of no return.

The steps

  1. Stop immediately incurring any further unsecured debt.
  2. Create a cash networth template which will show how much you owe each individual creditor. Regardless of whether you have multiple lending with the same creditor. And how much cash you have. Example if you have a credit card plus a mortgage with the same bank it goes all under the same creditor as one amount. I create two pages, the first is a breakdown of the different types of lending and the second page is the summary where I combine each creditor together.Eg all bank loans and overdraft with ANZ into one amount, all credit cards and loans with BNZ into one amount etc.
  3. On the networth template enter all the cash you had on hand at the end of the previous month and all the outstanding debt.
  4. Your networth position is how much you actually own by way of assets/cash against how much you owe to creditors which are your debts (liabilities) With the assets don’t include your house or any asset you do not want to sell to pay debt.
  5. Do the same thing for the previous two months. You should start to see a pattern. What creditor amounts are increasing? Hopefully your debts are getting smaller.
  6. If in three months your liabilities (debts) are increasing each month you need to take action now. In my case they were
  7. Next create a breakeven budget. This is where you allocate all your income to all expenses. Do the budget on a monthly basis. Include all expenses that you use in a whole year and divide by 12 to get a monthly figure. The book will have templates you can use.
  8. When you prepare the budget first of all list only the expenses that are necessary for survival.
  9. Make sure your income meets those first. Now add your income. Make sure its your after tax income. Work out your entire income for the year and divide by 12. Always work on the minimum income not the maximum.
  10. Make sure your survival items are at least, clothing and shelter and health. Do not include any debt except for your mortgage. With food use half the amount you would normally spend.
  11. Then build in the rest of the expenses. List the average over the year.
  12. The point is to get the budget to zero. All income is to be allocated to all expenses. If you do it on a spreadsheet you can just add in the figures and it will total automatically.
  13. Make sure you include savings as an expense because you will move it into a separate bank account. It is not to be used for day to day living.
  14. The last items in your budget will be any outstanding debt and food.
  15. Why – because you can get free food if you are desperate. Its also an expense that is not fixed.
  16. Take care of yourself and your wellbeing first before your creditors.
  17. If you can afford to pay them back, great, if not, now comes the magic.
  18. To be continued…………

In the meantime, here is a link to an article about getting out of debt on the BNZ Community board

https://community.bnz.co.nz/t5/Good-With-Money-blog/The-journey-to-being-credit-card-debt-free/ba-p/1019