Debt can be a wonderful slave but an
unforgiving master.
Australia, in common with many western
countries, has an extraordinarily high level of
consumer debt. The number of new credit card
accounts opened in the 12 months prior to
December 2012 increased by 210,000. But the
scariest figure is the accruing interest on credit
cards – at the time of writing is in excess of
$6,300,000,000 per annum (that’s over six
billion dollars) and growing by the second! You
can see why banks LOVE credit cards!
Please don’t misunderstand; properly managed
debt can be a great tool. Most people need it to
help them purchase their first house and other
necessities in life.
It is also very important in investment planning,
enabling you to purchase income-producing
growth assets, such as shares or property, to
boost your long-term wealth. In this case the
interest may also be a tax deduction.
The problem arises when debt is used for basic
living costs or purchasing depreciating assets.
This is further aggravated when the interest rate
applied is too high and there is no planned debt
reduction program in place. When interest rates
increase most people focus on their mortgage
rate and forget that the interest on their credit
cards sneaks up too. Most major cards are
charging around 15 to 20% with many
customers paying only the minimum amount
and sinking further into debt.
If you are not paying off your credit cards in full
every month, have other high interest loans, or
your current level of debt is keeping you awake
at night, you need to seriously consider your
financial direction.
Take control
of your
debt today!
Follow this simple plan and take control of your
debt before it takes control of you...
1. Restructure your debt by consolidating what
you owe at the lowest available interest rate.
Keep ONE credit card and cut up the rest!
2. Seek professional help from a financial
adviser to plan your financial goals and how to
achieve them.
3. Prepare and keep to a budget to ensure your
cost of living is within your means and put a debt
reduction program in place.
4. Beware of “interest free” offers and make
sure you can afford to pay off the entire balance
by the end of the contract. A lot can happen in
50 months so don’t get behind on your
payments.
5. Ensure new loans are only for a productive
purpose, such as investing, and can be justified
by potential future profit.
6. Avoid the mental attitude of “keeping up with
the Joneses” – the laugh will be on them when
the debt collector turns up at their door!
All of the above steps will make for a much
easier life in future years ... not to mention
sleeping better every night!
Sources:
www.rba.gov.au Credit and charge card statistics current as at December 2012.
https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock
http://www.canstar.com.au/credit-cards/compare-everyday-spender/