bills Archives

Charting a course to financial recovery

27 February, 202427 February, 2024 Budgeting, Education, Finance

Australian Bureau of Statistics, (ABS) figures indicate that between 2017-2018 and 2019-2020 total average household debt rose from $190,000 to $204,000. That’s an increase of over 7% in two years! The reasons why would make for an interesting study, however a more pressing question might be what can we do about it? Combine high levels of debt with rising interest rates and a cost-of-living crisis, and it’s no surprise that Australian households are reaching out to Debt Management (DM) companies to help regain control of their finances. DM companies are private organisations that can assist by: Sometimes, DM companies repay your debts – to a specified limit – and you repay them under a single loan arrangement. Terms and payment amounts can be negotiated, offering a beacon of hope and a sense that you’re taking back control. If this sounds like the perfect solution, remember that for every pro, there’s usually a con. For example: While weighing the pros and cons of a DM service, here are a few do-it-yourself strategies for consideration. Budgeting Creating a budget is a 3-step process. The government’s Moneysmart website lists easy ways of cutting back everyday spending. Negotiating Rather than customers defaulting, most banks and utilities companies prefer to negotiate repayment terms, sometimes even offering assistance programs. The key is to reach out before it’s too late. Be upfront about your situation and willing to arrive at a mutually beneficial arrangement. Remember, nobody wins when debts are not paid. Government assistance The Australian government provides a range of financial assistance packages and interest-free loans depending on circumstances. These include crisis payments for unexpected situations, and income support payments for cost of living expenses. Of course there are conditions, but further information, including application criteria, is available from the MyGov website. Financial counselling Financial counsellors help you understand your financial position and assist you to navigate your way out of difficulty. Some local communities offer free, or low-cost, financial literacy programs, aimed at providing education about money and debt reduction. Everyone’s financial position is unique. There’s no one-size-fits-all, so it’s important that your action plan is specific to your needs and that you’re 100% comfortable with any decisions you make. If you’re uncertain, seek the assistance of a qualified financial planner. What’s crucial is that you do something; being proactive is empowering and sets you on the path to financial recovery. The information provided in this article is general in nature only and does not constitute personal financial advice. 

“Tap and go” and then what?

2 March, 202224 February, 2022 Updated on24 February, 2022 Budgeting

Talk about hammering the plastic. In November 2021, Australia’s 13.2 million credit card accounts were used to make over 292 million transactions with a total value of $31.9 billion. Card holders who don’t pay their balances in full every month are currently paying interest on more than $18 billion worth of credit card debt. Interest rates range from 10% to 22% per annum so that adds up to billions of interest owing – and growing! It’s not just the easy money that cards provide; it’s the easy form of delivery via “tap and go” that’s pushing our debt to extraordinary levels. The quicker the transaction, the less thought or planning required. Pay now and think about it (and deal with it) later. Don’t become a statistic – here are some things to look out for plus a few tips. Traps Over 40% of credit card spending goes on groceries and utilities. While this isn’t a problem if you pay off your card balance in full each month, if you’re paying interest just so you can buy the necessities of life, it’s a real danger sign that you may be living beyond your means. Most credit limits are well beyond cardholder needs. On average, Australians only use about a third of their available credit limits each month. However, by giving you a higher credit limit card issuers hope temptation will get the better of you. If that means you can’t pay off your entire balance each month you’ll end up paying them lots of interest. Tips Financial institutions can only offer to increase your credit limit if you specifically ‘opt in’. This can be done in writing or over the phone. However, it’s prudent to withhold this permission to keep your limit under control. You can always apply for a once-off increase if you really need to. Switch to a reloadable (prepaid) credit card. Like a debit card it means you are using your own money with the added advantages that you can pre-set a limit on your spending and reduce the risks associated with buying online. Prepaid cards are available from banks, other financial institutions, and Australia Post. Make sure you check any fees and charges before buying one. If you sign up for a new card for an interest-free purchase, pay it off during the interest-free period then cancel the card before the renewal fee is automatically charged. There is no point paying an annual fee if you’re not going to use the card. And a myth Many people think that it is only lower income earners who are susceptible to the siren call of easy credit. But like the Sirens of Greek folklore themselves, it’s a myth. In fact, higher income earners also rack up huge balances on gold, platinum and diamond cards, and can experience real difficulty in paying them off. If your credit cards are more an enemy than a friend, a financial adviser will be able to suggest a range of solutions to get you back on track. The information provided in this article is general in nature only and does not constitute personal financial advice.