A bit more credit card advice …!

Following on from Tuesday’s blog asking how much you owe on credit, a number of readers are keen to also receive the email which I sent to Todd (that sentence will make sense if you read the previous blog topic). So - here is a (slightly edited) version of it below. 

Now, keep in mind, readers, that it may not all be relevant for you as everyone’s situation is a little bit different. But for everyone, there’s a good credit card calculator here to help you work out a realistic repayment plan.

And make sure you follow the other the below, about doing a budget, paying your living expenses first, ect.

Best of luck to all readers, and good on you for being proactive about it!

Hi Todd,

Finally – here is my answer for you. I hope that it helps! Don’t hesitate to contact a financial counsellor (I’ve provided details below) as it can really help to work through this type of thing with someone face to face. Often they will have a month or so waiting list, but it’s worth the wait.

Okay, so – this is my take on it:

Firstly, what you are doing now – putting everything on to the credit card – is clearly not working for you, so most important thing you can do right now is stop using the cards! I know that theoretically, when you calculate the figures, it can seem to work out better to put all your pay onto the card and just takeout what you need to survive, but really that strategy only works of you are disciplined spenders.

Much, much better to put the cards away somewhere safe (but not easily accessible) and use cash only to live on.

It can be hard, when we are used to being able to hand over the plastic and buy something on the spur of the moment, to get used to only buying something if the cash is in the bank. But once you are used to it, it becomes a way of life.

So – here’s what I suggest you try on a step by step basis:



1.  Put the cards away and have your salaries paid into a cash account.


2.  Make a commitment to pay all expenses from your cash account only (it needs both you and your partner to agree!).


3.  Do a written budget, so that you know what you actual living expenses are, and also, when big expenses are going to fall due. That way, you can try to prevent being caught short when the rego or rates or insurance falls due. There is a good budget template on the government’s Understanding Money website:


4.  When you get paid every fortnight, pay all your necessary expenses first. So – pay any bills that are coming due, put petrol in the car, buy groceries, etc etc. Again, it reduces the chance that you will get caught short and have to out things on credit. What some of us tend to do is get paid, go shopping, buy some clothes, go out for dinner and then think “ooops, there’s no money left for petrol”. 


5.  Once you have done those things – then start looking at credit cards. Because you have a big debt, you would be best with a card that has a low ongoing interest rate. But beware of the mailout offers of “no interest for 6 months” ect as when you read the small print some of those cards will have a very hig interest rate when the honeymoon period is over. I personally find a good place to start researching credit cards is the Cannex website:  They compare cards by interest rate, rewards and give them a star rating.


6.  Whether you switch cards or not, you then need to organise a regular repayment plan. DO your written budget first so that you genuinely know how much you can afford to pay off your debt each month. The risk of going all out and paying every single spare cent onto your debt is that you might suffer burn out and fall back on using your card again. As you said, the debt took a long time to build up and it may well take a long time to pay off. But banks look favourably on people who can show a good saving record, or a good repayment record, so over time, once you have a regular repayment plan in place, you can approach your bank again if you want to for a low rate personal loan.


7. Alternatively, roll the debt on all the cards into a personal loan. HOWEVER if you do this (and it can be a good idea - but you need to compare the interest rate that you would pay on a personal loan with the interest rate you could get on a credit card - often the credit card may be cheaper!) you MUST cancel your cards. Otherwise you may end up with a personal loan AND a credit card debt!!


8.  Very importantly, don’t hesitate to get an independent third party to sit down with you and help you work through all of the above. I don’t know what state you are in, but each state has financial counsellors available to provide advice to people in financial crisis. It is a free, independent service. You can access a list of the main organisations here:http://www.afccra.org/

Good luck with it all – I really really hope you can both get out sorted out together. It will take a huge weight off your shoulders, just knowing that you have a plan in place and are making progress.

Cheers,

Justine
Justine Davies
http://www.justinedavies.com

Twitter: @Justine_Davies_