Control your debt before it controls you

debt 150x150 Control your debt before it controls youDebt can be a wonderful slave but an unforgiving master.

Australians have an extraordinarily high level of consumer debt. It fuels our lives. For example, there were more than 204,000 credit card transactions just in the month of November 2015 – valued at more than $26 million! ($8.11 million of this was in cash advances). The scariest part of this equation is accruing interest on outstanding balances. At the time of writing it is around $5,432,000,000 per annum (yes, that’s in billions)! 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 investors to purchase income-producing growth assets, such as shares or property, to boost 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. Rate decreases tend to take a bit longer to be passed on. Most major cards are charging around 18-20%pa with many customers paying little more than the minimum amount and sinking further into debt.

How to master your 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. Follow this simple plan and take control of your debt before it takes control of you…

  1. 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!
  2. Restructure your debt by consolidating what you owe at the lowest available interest rate. Keep ONE credit card and cut up the rest! 
  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. Ensure new loans are only for a productive purpose, such as investing, and can be justified by potential future profit.
  5. Be smart when it comes to “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.
  6. Seek professional guidance from a financial adviser on (07) 3040 4840 to plan your financial goals and how to achieve them.

All of the above steps will make for a much easier life … not to mention sleeping better every night.



Disclaimer:

The advice on this site may not be suitable to you because it contains general information that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.  Please also refer to our general advice warning under contact us tab on our website.  The article is based on information available at the time of writing only and therefore care should be taken as to the accuracy of the content.

Image courtesy of [ jesadaphorn] at FreeDigitalPhotos.net

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