Consumers today are surrounded by lending institutions seemingly eager to push credit facilities as they compete for a slice of the lucrative credit market.
Tips to help you manage your debt and reduce it quickly include:
- A smart consumer should complete a budget (albeit weekly, fortnightly or monthly) to determine whether they can afford to purchase goods. The budget should be comprehensive and include non recurring weekly expenditures such as insurances and vacations that normally are paid for once a year.
- After completing a budget, you should be able to identify how much money you can afford to spend. Most people who get into financial trouble have not completed a budget and are unaware of how much they spend and how much they can afford to repay.
- Once you have worked out your uncommitted income, decide what items you are likely to purchase. This will dictate what credit or loan facility is suited to your needs. The less compulsive your spending habits are, the more likely you are to successfully manage your credit accounts.
- The choices of credit facilities include:
- Personal Loans – Suitable for large one off purchases such as a motor vehicle or overseas holiday. Interest rates are normally fixed and significantly lower than most credit cards. Repayments are normally direct debited against your bank account.
- Credit Cards – Allow the consumer to make multiple purchases up to a pre approved credit limit. Most accounts have an interest free period provided the account is paid prior to that date. If you fail to pay the account by the interest free date, interest charges are high as are penalties for late payment. Payment of the credit card account is monthly and normally done voluntarily by the consumer unless it is linked to a savings account. You should shop around for the credit card which best suits your needs.
- Debit Cards – Provide the convenience of a credit card with the exception that you are spending your own money as they are linked to your bank account. The benefit to consumers is that you cannot spend money you do not have although some transaction charges may apply.
- Interest Free – No repayment Store Cards Marketed widely by many large retail stores, consumers can purchase goods today and not pay interest for say 12 months or alternatively make no repayments for say 12 months. Provided you pay for the goods in full within the specified time frame they can be beneficial to consumers. Once the “honeymoon” period has expired, these accounts attract high interest rates often exceeding 20% per annum.
- Once you have selected the credit facility that best suits your needs, shop around as the fees and charges can vary significantly from one lender to another. Make sure you have read the terms and conditions of the credit facility and don’t be afraid to ask questions.
- Once the facility is in place resist the temptation of unsolicited requests to increase your existing credit limit. Similarly, avoid having multiple credit accounts as it becomes increasingly more difficult to keep track of your spending and manage multiple regular payments.
- Always make sure that you pay the minimum of your account each month to avoid hefty late fees. Your priority should always be to reduce the account balance on the facility with the highest interest rate, fees and charges.
- Make sure that your credit facility does not reach its limit as you may need to use it in the case of an emergency or for unforseen expenses.
- If you are having difficulty servicing your credit facility, seek independent assistance before the creditor commences recovery proceedings or lists a credit default against your credit file.
If you have questions on how to help reduce your debt our staff are available to assist you immediately on 1300 219 232.