How to Use Your Credit Card Wisely

Welcome back to the next installment of Credit month here on Get Out Of Debt. Last week we took a comprehensive look at different kinds of credit cards and finding the right one to fit with you and your spending habits. This week, I am going to share some tips on how to best use your credit card so you can stay on top of the repayments and not fall into debt.

Don’t take it to the limit

Your card will come with a credit limit, usually somewhere along the lines of $2000 or $5000, but that doesn’t mean you have to spend $5000. I won’t allow myself to spend over half my limit, but that’s just me. If you get close to your limit, stop using your card immediately and start making regular repayments to get it down again. Exceeding your credit card limit is not good financial management.

Track your spending

Always know when you have used your credit card and how much is owing on it. It’s pretty easy to swipe away when you spot a good bargain, but knowing you already owe your credit card $500 might help you to think twice before you reach for your plastic.

Look to the future

Before you use your credit card use a repayment calculator to figure out what your repayments will be to pay it off. This way you will know spending $400 today will mean you may have to sacrifice dining out or catching up with friends for the next few weeks. This will help you determine if your purchase is worth it. You will also see if it is an affordable purchase for you.

Automate Repayments

When it comes to repaying your card you should set up a regular automatic transfer on pay day. This way you won’t forget to make a repayment, you won’t accidentally spend the money you need to make the repayment and you can pay off what you owe quickly, avoiding excessive interest charges.

Always pay more than the minimum

If you have ever used a credit card repayment calculator, you will understand the horror that awaits making the minimum repayment on your credit card. By paying just the minimum repayment amount, you will accumulate thousands of dollars in interest and can take years to pay off your debt. Always pay off as much as you can each pay day and try to keep your balance as close to $0 as possible.

Avoid cash advances

Drawing cash out of your credit card can come with huge interest charges. It’s best not to use your credit card for cash. Instead, try to establish a savings account for rainy days. Even having $500 stashed away in a bank account can come in handy in instances like this.

Know your fees, rates and limits

Know your card inside and out. Read the fine print and learn if there are any provisions for overdrawing, cash advance, balance transfers or whatever else your card features. You don’t want to be charged excessive fees or dishonor charges by accident.

Need Help?

If you are still bewildered by your credit card and aren't too sure how to use one correctly, it's best to err on the side of caution. Only use it if you need to and pay it back as soon as you possibly can. Australian's collectively owe about $49,275,000,000 in credit card debt so next week I am going to look at paying down your credit card debt so you can chop up your card! If you are struggling with repayments in the meantime and want to talk to someone about your debt, you can call me and my colleagues at Debt Rescue on 1800 00 3328. See you next week!

Applying for a credit card: How to get it right

Welcome to Credit Month on Get Out of Debt! Throughout May I will be posting some handy tips, information and advice about credit cards, applying for them, using them and paying them off!

The first installment of our credit card crackdown will start where it all begins - applying for a credit card. As this blog is all about getting out of debt, we will be assessing whether you truly need a credit card to begin with. If you decide you do, we will also touch on the best ways to apply for a credit card, the different types of credit cards and which is the best fit for your lifestyle.

Do you really need it?

At first glance, credit cards offer convenience, rewards and possibilities. And if you are smart about the way you use your credit card, all these things can be true. However many Australians are using cards out of desperation. They don’t see the urgency in being able to pay them off and end up with thousands of dollars worth of debt they can’t afford to repay.
There are several reasons why you would need a credit card and having worked at a debt management company for 10 years, I have heard all the excuses:

• My parents had one, doesn’t everyone?
• I want to earn the points
• I need it for emergencies
• I need it to pay a bill
• I want to buy a TV on sale, but I don’t have the cash for it

No matter your reason behind wanting a credit card – you need to be aware of the responsibilities which come hand in hand with your new line of credit.

How Does a Credit Card Work

When you apply for a credit card you are essentially borrowing money from the bank. Some cards will have a limit of$2000, others a limit of $10,000. That money sits on your card until you spend it. The bank will then charge you at a rate of interest until you have repaid the money you spent.

Some credit cards will have an interest free period between billing cycles which will allow you to repay the money before any interest is accumulated. To own a credit card successfully, you should repay your credit card before the interest free period expires each and every month.

Which Card to apply for?

There are literally thousands of credit card products on the market at the moment. Not only that, we are bombarded with terms like low interest, no interest, 0% balance transfers, premium, platinum, Visa, MasterCard, interest, annual fees – so which one do you apply for? Well it all comes down to why you need a credit card and how you plan on using one. First, let’s take a look at some of the more common features of credit cards:

Low interest cards with higher annual fees - These cards usually offer a good interest rate but will always have annual fees.

Higher interest rates with no annual fees – These cards tend to have a slightly higher interest rate but forgo the annual fee.

Interest Free period – most credit cards these days will have an interest free period, like the billing cycle. This means if you use your card just after you received your bill, you will have until the next bill to repay what you spent without accruing any interest. But if you use your card 3 days before your next bill you will only have 3 days to repay it.

Balance transfer – Some cards offer a 0% interest period on balance transfers. This means you can transfer the money owing on existing cards to this card and pay no interest for a certain amount of time – this could be from 3 to 18 months. There are often limits on the amount you can transfer, for example – only 80% of the credit limit.

So now we know some of the common qualities of cards, we need to apply them to your situation to see which is the best card for you to apply for.

You only want a credit card for emergencies or unexpected large purchases

I am one of these people. I have a credit card, but I don’t often use it and when I do I can pay it off within the interest free period. In cases like this, it is better to go for a card with no annual fees. Yes the interest rate is generally higher for these cards, but if you can pay it off before the interest free period is over it won’t even come into play. You might even go for 12 months without having to use your credit card, in which case you don’t want to pay $100 in fees for a card you don’t use.

You need it to cover most bills but will be able to make regular repayments to keep it in check

If you are going to be using your credit card quite regularly and know you will drag the repayments outside the interest free period it’s better to opt for the lower interest card with annual fees. This will save you on the interest repayments while you are paying off your card. A small annual fee is usually applied to cards with a lower interest rate.

You already have a credit card at its limit and you need another one to cover your repayments

If this sounds like you, then you are in the red zone. If you are struggling to pay your regular expenses without a credit card then you are in debt and headed towards insolvency. I don’t mean to alarm you, but many people don’t realise they are struggling with their debts until it is too late. Luckily for you, there are things you can do to get out of this mess. My first piece of advice would be to call a financial counsellor to discuss your situation. There is an Australia-wide free call number which will put you in touch with a free financial counsellor in your area. That number is 1800 007 007.

I would also suggest you try to come up with a budget to see how much money you have left over at the end of each month. If you have surplus money, you can apply for a credit card with a 0% balance transfer and try to transfer the majority or all of your existing debt onto a card with 0% interest on that balance. By consolidating your debt, you might be able to get a few months grace from interest while you pay down your debt.

Now you know which Card – How do you apply?

Easy… or is it? Now you know which kind of card you are after, you need to find the right product for you. Applying for a number of different cards all at once can have a negative impact on your credit file. It can even lead to rejection of your credit cards or loans. You should do your research before you apply for your card to find the best product. You can use a comparison site, like Rate City to see all the cards laid out in one place. You can even use the search function to find a card with 0% balance transfers, low annual fees or any other criteria.

Once you find the card you want the application process is usually as easy as filing in a few personal details. Some banks will let you know the outcome straight away, while others may take up to 5 business days to run credit checks and alert you of your approval.
While you are waiting for your card to arrive… I will put together the next installment of my Credit Month blog posts for the Get out of Debt Blog. Next week I will be talking about the Best practices for using your card. I have already touched on some tips in this post, but next week I will elaborate on how you should use your card to avoid falling into debt.

Until then, if you are struggling with debts and want to speak to someone you can call me at Debt Rescue on 1800 00 3328. Signing off! Sophie Bright.

Get out of debt without getting a loan

Close to 70% of Australians have admitted to struggling with debt and many can’t make their minimum repayments month to month.

In order to overcome this, many people apply for financing or a new credit card to help cover their immediate costs, without thinking about the long term ramifications.

Applying for finance to get out of debt will only add to your debt amount, causing a vicious debt cycle.

If you currently have more debt than you can pay, you do not have to take out a new loan to pay off your debts.

Get Out Of Debt Without A Loan

The first step to get out of debt without applying for a loan is to do a budget.

You should write a list of all your debts including how much you owe, the interest rate you are paying and the regular due dates of each.

From this list you can plan exactly how much you need to have put away in order to cover your debts. To ensure you have enough money, you can cut down on everyday luxuries, such as cigarettes, alcohol, movie tickets, lotto tickets and eating out.

Many people in debt have already tried to budget and still don’t have enough money to cover their debts and living expenses.

Luckily there are other methods you can try to avoid applying for a loan to get out of debt.

How to get out of debt with a Debt Agreement

A Debt Agreement is one way for you to get out of debt without applying for a loan. It is also a great alternative to applying for Bankruptcy in Australia.

Often, your creditors will agree to waive account fees, interest charges, and in some cases they will even reduce the principal.

By entering a Debt Agreement, you will be able to pay less towards your debt every month and in many cases get out of debt faster than if you had continued to make monthly payments.

You can enter into a Debt Agreement by calling debt relief services provider or personal debt management specialist who is a Registered Debt Agreement Administrator.

After providing this professional with the list of your debts, the professional starts to negotiate with every lender on the list.

In many cases, the company will already have a relationship with bank employees who are able to make the decisions regarding a debt agreement for a consumer.

Where to turn for help

If you would like to explore your options to get out of debt, contact Debt Rescue.

Debt Rescue offers a range of positive solutions to your debt including budgeting, debt agreements and debt consolidation.

Get out of debt now and Talk to an Aussies Who Cares by calling 1800 00 3328 or visit www.debtrescue.com.au

Aussies sitting on $50 billion credit card debt

Credit card debt is a huge problem in Australia with the nation racking up a debt to the tune of $50 billion.

While Aussies have slowed their credit card usage, we aren’t out of the woods yet.

In the past 30 years, the national credit card debt has increased year on year, sometimes by up to 28%.

New research from the Reserve Bank shows the total credit card debt has been between $48 and $50 billion for the past two years.

These figures suggest people are only making minimum repayments on their credit card, rather than making an effort to pay down their debt.

“It’s great for Aussies to have moved away from relying so heavily on their credit cards, but the remaining debt can still cause a lot of problems,” Debt Rescue operations manager Rachael Witton said.

According to Ms Witton, sticking to the minimum repayment amounts set by banks could cost you thousands of dollars over a number of years.

“By making the minimum repayment (which is 2% on average) on a $2,500 debt, it will take about 20 years and three months to pay off,” she said.

“The total interest you would pay in that time is roughly $4391 (based on the average purchase rate of 17.21%) which could be better spent on the family home, a holiday, a car or a rainy day fund.”

Credit Card holders are encouraged to get a handle on their debt by prioritising their repayments.

“Credit card debt is easy to lose control of because the money is always available to you,” Ms Witton said.

“By sitting on the debt for so long, it’s easy to become complacent.”

Debt Rescue helps people take control of their debt every day and Ms Witton said the debt cycle can easily be broken with a few small changes in your spending behavior.

Start Budgeting

How do you know what you can afford without knowing how much your have to spend? Taking an inventory of your income and your expenses in a budget will help you understand where your money is going and the places you can cut back on.

For example, if you are buying your lunch at work every day you could be spending over $75 each week. Packing left overs and planned lunches at home could save you hundreds of dollars each month.

Consider Balance Transfer Offers

There is a lot of competition for consumers in the credit card market at the moment. One way to steal consumers from the opposition is for banks to offer great deals on balance transfers.  

Shop around for a balance transfer deal. The best ones out at the moment offer you an interest free period of 6 months. During this time you should knuckle down and pay off as much of your debt as possible. 

Then once the interest free period ends your debt should be manageable. Be wary of transfer fees, but these are usually a lot less than the interest you would be paying over the 6 month period.

Stop using your credit cards

Paying off a debt is hard enough without it continuously growing. The only way you can plan to pay down and keep on track is to stop using your card. 

Your budget will help you plan for your bills so you can ensure you have enough money to cover your big ticket bills, then any money left over can be used as you see fit. If you can’t afford it straight away, save up or ask if you can put it on lay-by.

Renegotiate Terms

With so much competition for consumers, a simple phone call might be all it takes to lower the interest rate on your credit card. Enquire with your bank if they would consider giving you a better offer.

Have a look around at the offers available through other credit card providers and ask them to match or beat a competitor’s deal.

Consider a debt relief plan

Debt can be tough to tackle on your own, fortunately there are experts out there who specialise in cutting down debt. If you want to get fit, you would visit a personal trainer, if you want to get out of debt, talk to an expert. 

There are a number of debt relief options available to people at different stages of debt. From debt consolidation and informal debt agreements to formal debt agreements and bankruptcy, there is a positive solution available for you.

Bankruptcy is NOT the Easy Way Out

Imagine this - you are in debt. You owe a lot of money to many different banks and there is no way you can even start to pay it back. These banks are calling you every day and night to start to recoup some money. You can't afford to eat, buy clothes or petrol. The stress caused by your situation makes you act strange and your friends and family start drifting away from you. Then you hear about a thing called Bankruptcy which will make all your problems go away and you won't have to repay a cent.

Looking at it through a debtors eyes, it's easy to see why Bankruptcy is hailed as the easy way out. You don't have to pay for your mistakes, you aren't help accountable and your debt will just disappear, no questions asked.... if only it worked that way.

Bankruptcy is a huge commitment with several rules, restrictions and regulations. It is designed to help you learn from your mistakes, hold yourself accountable and repay whatever you can to your creditors.

Once you declare bankruptcy, a trustee will be assigned to your case. Anything of value outside of the set thresholds will be handed over to your trustee to sell. All the money from the sale of your assets will be distributed to your creditors.

The assets taken could include your home, car, tools, watercraft and large windfalls such as lotto wins, inheritances and your tax return.

Bankruptcy has thresholds placed on things like vehicle, tools of trade and your income anything worth more than the threshold will be given to your creditors.

A bankrupt must also adhere to strict rules, including no overseas travel, and you can not borrow money for the duration of your bankruptcy.

Bankruptcy can last from 3 to 8 years and will appear on your credit rating for 8 years. You will also be listed on the National Personal Insolvency Index for life.

There is nothing easy about Bankruptcy, although it does have it's place in Australia. For people who have completely exhausted all their options, bankruptcy can create a solid foundation from which to rebuild their finances.

For people who have only just fallen into debt, there are a number of other debt relief options available such as debt consolidation and debt agreements.

You can even apply for an informal debt agreement which wouldn't impact on your credit rating at all.

For more information on debt relief options click here.

How you know when you are in debt...

...and how to get out of it.

Everyone has a bad week here and there. When you lose track of what you have spent your money on and all of a sudden, you find yourself short.

If you are on top of your finances, you would have an emergency fund to fall back on until you find your feet.

But sometimes those bad weeks just keep coming, there is no emergency fund to speak of and you fall deeper and deeper into debt.

It's times like this, you could use a little help.

The best way to avoid falling into debt, is to identify the tell-tale signs of an impending insolvency.

1. You never seem to have enough money.

When you go to pay regular bills or purchase everday expenses, you never seem to have enough money available.

This is when you turn to things like credit cards and personal loans, which only makes your debt worse.

How to avoid it: Draw up a budget and monitor where your money is going.

Be sure you always have enough money put aside for your bills by cutting back on unnesesary purchases, like expensive takeaway or a trip to the cinemas.

2. You have several credit cards and personal loans in your name.

Borrowing money from the bank is easy and takes the pressure off your financial situation...for the time being.

But several credit cards and loans can get out of control and you are losing a lot of money paying interest and fees on each seperate account.

How to avoid it: To get all your loans down to a level you can cope with, you should consider consolidating your debts.

This will roll your repayments into a single regular repayment and leave you with only one set of interest. The catch with this is - you need to STOP using your credit cards.

3. You are more than a month behind on your loan repayments.

When it all becomes too much, it is sometimes easier to just ignore your debt in the hope it will go away.

Throwing your bills in the bin, ignoring your statements and wreckless spending will only add to your debt and make the situation worse.

How to avoid it: If you are weeks behind on your payments and you don't see a way of ever catching up, you can propose a Debt Agreement.

A Debt Agreement is negotiated by professionals to propose a new repyament schedule better suited to your situation. For more information on a Debt Agreement click here.

If you are having a problem with your debt, don't let it get out of control, no matter what stage you are in, there is always something you can do to get it under control.

For more help with debt visit www.debtrescue.com.au

Free Financial Assistance in Australia

One of life's most stressful experiences is having a bill and not being able to pay it.

Almost every Australian has experienced this frightful situation once in their lives, whether they were uni students learning to juggle their money, recently separated parents adjusting to the new income levels or someone who has lost their job or been injured and doesn't have any income at all.

If you have ever been in a situation where you can't pay a bill, you will know the stress, panic and anxiety involved.

You will also know how isolating it feels when you have nowhere to turn for help.

While countries across the globe are experiencing economic disasters, Australia is slowly and cautiously feeling its way through these uncertain times.

The government of each State and Territory in Australia has introduced benefits, schemes, discounts and assistance to ensure Aussies who are struggling with their bills are given a fair go.

While the assistance offered in each State and Territory varies, residents can expect to find financial help with paying utility bills, rent, mortgage, medical costs and everyday essential purchases. You can also find free financial counselling to develop a plan to get your money back on track.

For a full list of free financial services available in each State and Territory, follow the links below.

Free Financial Assistance

Queensland | New South Wales | Victoria | Australian Capital Territory | Norhtern Territory |Western Australia | South Australia | Tasmania