Three quarters of us are in credit card debt

One of the myths of the credit card market is that only a minority of cardholders carry a balance on their cards from one month to the next.

In fact the opposite is true.

According to Reserve Bank credit card figures, the “revolve rate” on cards is 72% (the revolve rate is the finance industry term for cards that carry a credit balance from month to month).

Consumers spent an average of $15,963 on their credit cards over the past 12 months and carried an average account balance of $3,234.

And whilst spending on cards increased by a fairly modest 3.3 % over that 12-month period, balances still increased by 6.9% - which means we are reining in our spending on cards but accumulating more debt.

Customers with multiple credit cards should always pay off the one with the highest interest rate first.
Alternatively they should consider consolidating the debts into a low rate card through a balance transfer offer, or consolidate into a personal or home loan.

For assistance with managing your debt or if you would like more information about debt consolidation loans, speak to one of the financial consultants at Intellichoice today on 1300 55 10 45.

More Australians are struggling with debt

According to a study by Veda Advantage, one in five Australians are struggling to repay their debt. The biannual Australian Debt Study also found that more than 80% of Australians are worried about their ability to make debt repayments over the next 12 months.

The survey also found that one in seven Australians have missed a minimum bill repayment in the past three months – up from 12% in September 2009. Of those who had missed a repayment, one in ten Australians are looking to take on more debt in the next six months.

A Veda Advantage spokesperson said “this is the highest level of debt stress in the past two and a half years of this study.”

If you are struggling with debt and need help with managing debt, budgeting or debt consolidation, speak to a qualified financial planner at Intellichoice today on +61 7 3624 1900.

Pay down bad debt and focus on the good debt

Many Australians are struggling to repay their debts. According to The Australian, many more are dealing with rising interest rates easily because they have made provisions for the higher repayments, or never lowered their repayments when interest rates were falling.

Experts recommend that bad debt (incurred when a person buys things that depreciate in value, such as a car, shopping or a holiday) needs to be repaid as fast as possible. This type of debt does not help you to increase your wealth. Furthermore, interest rates on credit cards or personal loans can attract between 9 - 20% in interest charges. Good debt on the other hand, such as a mortgage to buy a house, or a loan to make an investment can increase wealth because the assets may rise in value.

If you need help consolidating debt, budgeting, debt management or would like more information about building wealth, speak to one of the financial advisors at Intellichoice today on +61 7 3624 1900.

Pros and cons of a debt consolidation loan

If you have multiple credit card debts, car loans and personal loans and making minimum repayments each month is causing you stress, then you should consider a debt consolidation loan. Before you take out a debt consolidation loan, we recommend that you first speak with a financial advisor to ensure this is the best option for you.

Below are a list of pros and cons for debt consolidation loans:

Advantages of a debt consolidation loan

• One payment to make: Making a single repayment each month is so much easier and less stressful for you. It makes it easier to manage your finances
• Reduced interest rate: The interest rate on a debt consolidation loan will be much lower than the interest rate on your credit cards
• Lower monthly repayments to make: As the interest rate on your debt consolidation loan is lower, the amount you pay each month will also be lower
• Only 1 creditor: You only have to deal with one creditor instead of multiple creditors. 

Disadvantages of a debt consolidation loan

• It may be easy to get into debt again: As all your debt has been consolidated into the one loan, it might be tempting to start using your credit cards again or continue bad spending habits that got you into debt in the first place
• Longer time to pay off your debt
• You may end up paying more over the long term: As the debt consolidation loan term is longer, you may end up paying more interest to clear your debt

Before you get a debt consolidation loan, you should realistically look at the pros and cons to determine if this is right for you. Speak to one of the financial planners at Intellichoice for more information about debt consolidation loan and how we can help you with budgeting and managing debt.

New year resolutions add to wealth

Turning your financial goals into new year resolutions increases the chances of success by up to ten times according to new research from the United States.

The US researchers found that almost half of the people who turned their plans and goals into a new year’s resolution had reached their goal or were still on track with it six months later. Less than five per cent of people who had goals for the year but did not make them into a specific resolution were still on track with their plan.

However, experts warn that the resolutions must be very specific to bring any worthwhile benefit. It won’t work to simply resolve to “cut back on debt” for example.

Popular new year resolutions include saving money – experts suggest setting up an automatic savings plan with direct debits – and paying off debts – experst recommend paying the high interest credit cards off first.

For more information or help on savings plans, budgeting, debt management or consolidating debts, speak to one of the financial advisors at Intellichoice today.

A guide to managing debt

If you have a number of debts from various sources, there are ways to reduce or better manage them. We recommend that you speak with a financial advisor first, who can recommend the best option that suits your needs. Below are just some of the strategies you could use to better manage debt.

Budget
Take the time to complete a budget planner. A budget will help give you an idea of where you're spending your money, where you can potentially cut back and how much is left over after you've paid all your regular bills and living expenses. If you find that your income is greater than your expenses, you can use the extra money to pay off your debts.

Pay off higher-interest loans first
Credit cards or personal loans tend to have a higher interest rate, so it makes sense to repay these first. Pay at least the minimum monthly amount. We recommend that you budget carefully and try to keep money aside for extra repayments.

If you have more than one loan, make extra payments on the loan with the highst interest rate first. Once that has been paid off, focus on the next highest interest rate loan.

Reduce your mortgage
Any extra repayments you make on your home loan will reduce the interest you pay in the long run, potentially reducing your mortgage term by years. Before you make any extra payments on your home loan, check with your lender first, as some may charge you for paying more than you should or paying out the loan early. You should also check that your lender allows you to withdraw money from your home loan as this will give you peace of mind that you can get back any extra you've paid you need to, for example, to pay for emergency bills.

Combine your debts with a debt consolidation debt
Consider a debt consolidation loan to repay all your debts. This will make life simpler for you as you only need to make one payment each month now. And if the loan has a lower interest rate than your other debts, you save money.

Use your home loan redraw facility
Another option is to redraw funds from your home loan to pay off your personal loans or credit card debts. Home loans generally have lower interest rates, so redrawing money to pay off your outstanding debts will result in you paying less interest and having a lower overall repayment.

If you can maintain the monthly repayment at the amount you were paying on the individual debts, you'll reduce the loan even quicker.

You could also use your redraw facility as a savings account. Instead of keeping money in your bank account or a cash trust where you pay tax on the interest it earns, you'll reduce the amount of loan interest you pay while still having access to your money.

For more information on how to manage and pay off your debts quickly or if you need help with budgeting, speak to a financial advisor from Intellichoice on 1300 55 10 45. They will be able to recommend that best option for you based on your circumstances and needs.

Reviewing your finances for the new year? Some money saving tips

Many people refinance their homes or investment properties to reduce their monthly home loan repayments. What other aspects of your finances can you review to help save money?

Review the frequency of your home loan repayments
If you are paid weekly or fortnightly, see if you can change the frequency of your home loan repayments to fit in. The interest on your home loan is calculated daily and making a payment two weeks earlier each month saves you money in the long term. In the short term, it will help make ongoing budgeting easier.

Consolidate debt
If you’re paying high interest rates on your credit and store cards – each of which will probably have an annual charge – think about consolidating all your debts in one loan with a debt consolidation loan. You may very well be able to access a lower overall interest rate, reducing your monthly outgoings and you will also avoid paying duplicate fees. Plus, a single monthly debt repayment is easier to manage than having to pay multiple credit card bills.

Cars
Cars are often the biggest family expense after home loan repayments. But as family needs change over time, and the price of petrol rises, we can find we have more expensive cars than we need. Could you downsize your car/s, not only reducing monthly repayments, but also potentially saving in maintenance, insurance and fuel costs? Have you thought about buying a scooter for short, local trips? Are you getting the best deal for the money you spend on your car insurance and repairs?

Insurance
There are three ways you may be able to save money on your insurance premiums. First, shop around when your renewals fall due rather than simply continue with your existing provider.

Also, you may be able to reduce monthly premiums raising the excess payable, or improving the security of your home.

Finally, some insurers provide discounted rates for bundling together policies such as home, contents, car, health or life insurance. If in doublt, speak to a financial advisor from Intellichoice - they will be able to assist you in finding an insurance policy that suits your needs and budget.

Clear out the shed
Do you have items of value gathering dust in your shed or garage? Whether you hold an old-fashioned garage sale or go onto e-bay, perhaps now is a good time to get money for the belongings you’ll never use.

Financial planning
If you’d like personal advice with regards to your financial future, speak to one of our qualified financial planners at Intellichoice. A financial planner can help you to set goals and implement a plan to help you reach them. Speak to our financial planner now on 1300 55 10 45 for an obligation free appointment.