For all of us Christmas is expensive, however for many people, its spontaneous spending that comes at the greatest cost. The credit card bill arrives at the time of the year when financial outgoings are at their highest. The weight of this debt can place enormous stress on relationships, so here are our Top 3 Tips for getting you back into the black…
1. Commit to a financial plan & budget
Make it your New Year’s resolution to take the time to review your current financial situation. Are you spending more than you earn? Do you know how you spend your money, or does it just disappear? If you’re having trouble balancing the books of your household budget, it may be time to ask for help.
Understanding your financial affairs, including your spending and savings habits will alleviate the worry of financial uncertainty, and it will empower you to make the most of opportunities as they come your way. Naturally, we’re here to help and we do it with our easy to use, online program called MyUltimateGoal which tracks your spending in terms of your overall savings goals. Click here to find out more.
2. Pay down your credit card first
Your credit card balance is charged at a much higher interest rate, and depending on your credit provider it can be anywhere from 18% to 24%.
The key is to repay your credit card balance in full each month to avoid paying any interest, but if that’s not possible you need to take other actions. For example, you could draw down funds from your home loan. Your home loan will be at a lower interest rate, most likely in the region or 5% to 6%, but, and it’s a big BUT, you need to be aware that by taking this action, you are taking a short term debt and adding it to a long term debt. The key is to continue to pay your home loan repayments as well as extra amounts to neutralise the credit card debt as soon as possible.
If redrawing from your home loan isn’t an option, talk to your bank and ask them for an ‘interest only’ amnesty period, so you can redirect your usual principal repayments to your credit card to clear that debt quickly.
3. Be a savvy shopper
Firstly, shop around for a new credit card. One that offers an interest-free period for 12 to 18 months upon transfer of your balance. This will provide you with an interest-free window for redirecting your surplus cash to clear your debt.
Next, take stock of your spending. In an era where op shops have become a new shopping destination and second-hand is now considered ‘vintage’, review your need to buy new. From clothing to school books, you’ll save a lot of money buying pre-loved.
The key is to take action now. Debt stress will keep you awake at night and it’s among the top three reasons why couples argue. If you know all this, but still you haven’t taken action, you could be suffering from what we call ‘paralysis by analysis’. It’s a common ailment of those who simply don’t know what to do next. Our advice, ask your bank to help, visit your accountant or ask us. We’re financial planners and we can help, give us a call on 07 3251 3201.