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The May 2003 edition of Reader's Digest in Australia carries an article called "Dig Yourself Out Of Debt" in which they have referred to my book, How To Be Rich & Happy On Your Income and explained how my family and I coped following my retrenchment from a well paying job twelve years ago.

Since ballooning debt is a huge problem, not only in Australia, but throughout the western world, I thought I would give you some debt busting tips in this ezine.

The level of personal debt in Australia is growing four times faster than our inflation rate! It seems that our low interest rate environment is making us complacent about debt.

According to the Australian Bureau of Statistics, personal debt is growing by 11 per cent a year.

The Reserve Bank of Australia says that the personal credit card debt of Australians has increased almost five fold to $23 billion during the last 10 years.

The Bank also says that the average household debt has climbed to almost 125% of disposable income in 2002, up from 56% in 1992.

The result of this easy credit environment is also that record numbers of Australians are declaring bankruptcy - 24,109 did so in 2001-02 which was a 43% increase from ten years ealier.

Not only is the number of people declaring bankruptcy on the increase, but the amounts of money over which bankruptcy is declared is sometimes surprisingly small.

Credit card debt is now the second highest cause of personal bankruptcy following unemployment. About 20,000 of the last year's 24,000 personal bankruptcies were not related to business failures but simply the inability to handle credit.

The typical bankrupt is aged between 25 and 44 and is someone who has used his/her credit to the limit then lost a job, become ill or got divorced. A fairly low amount of debt can trigger bankruptcy with almost four in ten being for sums less than $10,000 and half of these for debts under $5,000.

People often opt for bankruptcy to clear themselves of debt but while bankrupts are generally discharged after three years, names stay on the Credit Reference Register for five years.

In order to build wealth, you need to be a good credit and money manager. Here are some tips to keep on top of debts.

Tip 1 - Only buy on credit what you know you can pay for in cash when your credit card or loan becomes due and payable.

This is an important rule to follow to make sure you never get into debt over your head.

Some people buy something on credit and hope that by the time they need to pay for it, they will have made that sale or collected that money. When the money doesn't materialise in time, they are in trouble.

Worse still, with many of the things we buy on impulse, we later realise that we don't particularly want them anymore.

Remember: If you keep buying stuff, you'll end up with stuff all!

Retailers are increasingly offering "buy now, pay later" terms for the purchase of goods but the trap for the consumer who can't pay within the agreed time is a skyrocketing interest rate - sometimes 26 per cent or more.

Consumer groups warn buyers of goods such as major household items or cars to look at the substantial risks of deferring payments for up to two years. The Australian Consumers' Association says such credit is equivalent to personal loans and attracts "punitive interest rates of 27 to 28 per cent".

Often, the high interest applies right back to the date of purchase if payment is not made in full before the end of the interest-free period, Infochoice warns.

The ACA says these offers can be fantastic deals for people who are disciplined with payments but carry a large risk for those who aren't or can't really afford them.

Tip 2 - Pay your credit card in full when it is due

If you apply Tip 1, then this tip automatically follows.

Rather than paying just the miminum amount off your credit card when your monthly statement arrives, make sure you pay off the whole balance. This way you will not incur the penalty interest and other charges which apply to credit cards.

If you just pay the minimum ammount each month, you'll stay in debt for years and pay much more than the article is really worth.

Tip 3 - Pay off your high interest debts first

If you are already in a hole and are looking to climb back out, stop spending money on things you don't need and stop spending on credit.

Take a look at all of your debts and check out the interest rates you are being charged.

Then sort them into order from the highest rates to the lowest rates. Your next step is to pay as much as you can off your highest interest debts while still maintaining the minimum payment on the others.

This may require some sacrifice on your part and certainly some discipline to reduce the debt as quickly as possible.

Once you have paid your highest interest loan off completely, apply the same payment

You continue this process until you have paid all your debts in full. When you do so, you will be paying greater and greater amounts off your debts at once and you will eliminate them systematically and quickly.

Tip 4 - Downsize your spending to live within your means

Another way of saying this is to spend less than you earn.

Yes I know, you've heard it all before. The fact is, that's the way it is and even if you've heard it all before, the question is: Are you applying this principle to your life right now?

The best way of doing this is to maintain a budget or spending plan as I prefer to call it.

Tip 5 - Be a smart consumer - Learn how to spend wisely!

The reason why many people find it difficult to stick to a budget is because they don't plan their spending before they go shopping.

A smart consumer plans their spending and shops wisely.

They don't buy on impulse.

In the book, How To Be Rich & Happy On Your Income, I explain the MESS Shopping system which we have found helpful in our own lives:

M - stands for Make a list E - stands for Evaluate whether you really need it S - stands for Shop the ads - or look for special offers S - stands for Stick to you list!

Shop once a week at your supermarket rather than whenever you run out of things because you often end up buying extras. Buying from convenience stores is far more expensive than buying from supermarkets.

Tip 6 - Look for and negotiate good deals

Wealthy people are never afraid to negotiate for a better deal.

They ask for discounts and make sure they stretch their dollars as far as they can.

They compare prices from different suppliers and buy during sale times if possible.

If you buy petrol on Monday or Tuesday in Australia, it is usually cheaper than later in the week. If you have a big car, this will save you about $5 a week or $250 a year.

Shop around for quotes to get your car serviced.

Check that you're on the mobile phone plan that's best for you.

Tip 7 - Save first - Buy later

Once again, I know this is not a popular idea in our world of instant gratification and easy credit, but it works.

One of the benefits of saving for something first is that by the time you have saved for your desired item, you have possibly decided that you don't really need it anyway or you have located it at a better price.

My kids were surprised by this concept and were delighted when they found it works!

Tip 8 - Contact your creditors if you are in trouble

One of the biggest mistakes people in debt make is to throw all their bills into a drawer and hope all their challenges will go away.

They might throw the envelopes out which contain bills, let them pile up on the kitchen bench, or simply ignore them.

This is a big mistake which will lead to more problems than if you would have contacted your creditors to explain that you have a problem. If they don't hear from you and they don't receive payment, your creditors will assume you don't want to pay them.

Creditors may let you reduce your payments or lower their interest rate if you explain your circumstances to them.

Tip 9 - Take your lunch to work instead of buying takeaways

This can save you $5 - $10 a day or as much as $1,000 - $2,000 a year.

Tip 10 - Learn as much as you can about managing your money and investing for good returns.

You've worked hard to earn your money, therefore you have a special relationship with that money. You probably value it much more than someone else does. In fact, you are the best person to look after your money.

You just need to learn how to do it better.

Invest according to sound financial principles rather than for tax benefits. Invest to make money, not to lose it.

Look for positive cash flow real estate investments rather than negative gearing and don't rely on the tax rebates to give you the "positive" cash flows.

About the Author

Hans Jakobi has a mission. He is dedicated to teaching ordinary people how to take control of their financies and build wealth. Hans teaches that you are the only person you should trust with your money. He is a Chartered Accountant with a Degree in Ecomomics and Accounting. After applying his knowledge to a multi-million dollar investment portfolio himself, he now teaches the keys to achieving financial independence. He says that you have reached financial indpendence when you no longer have to work for money, because your money now works for you. Click here to learn more about Hans Jakobi's teachings: http://www.moneysecretsonline.com To subscribe to his Free 15 Day Financial Freedom NewsLetter send email to: msonewsletter@onlinemediasolutions.com