What if one action could change the course of your financial future?
For Raj Patel that action was seeing a financial counsellor. "In my wildest dreams I never would have thought that I'd be on Centrelink benefits or be in a situation where I would need a financial counsellor," he says.
![Raj Patel was on the verge of declaring bankruptcy when he saw a financial counsellor.](/web/20161022121534im_/http://www.canberratimes.com.au/content/dam/images/g/s/3/s/8/5/image.related.articleLeadwide.620x349.gs3sf9.png/1476748390267.jpg)
In 2007, the 50-year-old had his own IT companies; an investment property; and a family home. His two children had reached adulthood and he was preparing to retire.
Then his wife was diagnosed with a malignant brain tumour. With her health deteriorating quickly Raj closed his companies to stay by her side.
She passed away within a year. But when Raj tried to return to the workforce in the wake of the global financial crisis, finding a job in IT proved impossible.
With his investments wiped out, he was forced to sell first his Queensland investment property and then the family home in Sydney to survive.
Even when he secured work at the Salvation Army's Employment Plus, creditors kept hounding him.
On the verge of declaring himself bankrupt, Raj turned to the Salvation Army's free Moneycare financial counselling service.
"From the first meeting onwards it was as if the weight was lifted off my shoulders," he says. "I could focus on getting myself back on my feet and getting stable employment."
His financial counsellor helped him renegotiate his debt on the basis of intense hardship. It took until this year to make the final debt repayment and he has now retrained as a counsellor and has a stable and fulfilling job.
Tony Devlin, territorial coordinator, Moneycare, says when people are under financial stress – worrying about paying the rent and buying food – they tend to make poor decisions about their long-term finances.
At its annual Moneycare Day on Wednesday it will highlight three key actions people on low incomes can take to improve their financial prospects.
1. Bypass dud debt
Perhaps you don't have a credit card (or it's already full) and there's an urgent bill to pay. A payday loan can seem like a welcome relief. But there are cheaper alternatives available to people on low incomes.
The ASIC Moneysmart website has a pay-day loan calculator which shows just how much the fees on these loans can add up.
Pay-day loans can have an establishment fee of up to 20 per cent of the amount lent and ongoing monthly fees of up to 4 per cent.
Someone who borrows $650 for a year to buy a new washing machine will pay $1092 in total if the establishment fee is 20 per cent and the ongoing monthly fee 4 per cent.
A better way to fund essential items such as whitegoods, car repairs or a computer is via the no-interest loan scheme (NILS) progam. A loan of up to $1200 can be paid off in equal instalments over 12 months. With no fees or interest, a $650 washing machine will cost you exactly that.
Spending a couple of hours doing the paperwork for a NILS loan can "potentially save you thousands of dollars," says Devlin.
It's also an alternative to expensive consumer leases or rent-to-buy arrangements.
He points to one single mother with three children who took out a consumer lease for a television, sound system and an entertainment unit. She paid more than $8000 over four years for items that cost about half that.
Perhaps you've got a bigger than expected electricity bill. Instead of turning to a pay-day loan, a financial counsellor could help you negotiate a hardship arrangement.
The Centrepay advance system offers another option. But Devlin says it should ideally "be used as a fall-back if things are really tight and you need to pay the rego or buy a new fridge not in the normal course of events."
2. Get a basic bank account
Bank fees can drain away your money. To plug the leak Devlin suggests switching to a basic bank account. Generally, they are available to people with a Pensioner Concession Card; a Health Care Card or a Commonwealth Seniors Health Care Card.
All the major banks offer them and the beauty of these accounts is they have no account-keeping fees; no overdrawn fees and they allow unlimited fee-free branch, phone, eftpos, internet and mobile banking transactions.
You will still be charged foreign ATM fees if you use an ATM that is not part of your bank's network.
See the Australian Bankers' Association website affordablebanking.info
3. Prepare for the unexpected
As Raj's story shows, an unexpected turn of events can play havoc with your finances. Devlin estimates more than 90 per cent of its clients do not have contents, car or house insurance.
"We see it quite often people's cars might only be worth $2000, $3000, $5000 but if you get that severely damaged or stolen … it's so difficult to get to training, employment, the kids to school, health appointments. That's when you're tempted to go off to the pay-day lender."
Two insurance products, developed in partnership with Good Shepherd Microfinance, ensure they can now access affordable cover.
The IAG contents insurance policy allows people to select individual items that they want to insure such as a computer or a fridge or a musical instrument. It has a low excess of $50 per item.
The Suncorp car and home product can provide cover for contents of $10,000 or $20,000 and up to two cars valued at $3000 and $5000.
Devlin says at the Moneycare Day people will be invited to pledge to take one of these actions. Those that make the pledge on the Salvation Army website will be contacted by one of the Moneycare team to discuss how they can stick with their goal.