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Good advice from Bridges

New Year tips to tame the debt monster

Here are some handy hints from Bridges, our financial planning partner, to get your debts under control and your finances on a positive track for the New Year.

When it comes to New Year’s resolutions, ‘getting my finances under control’ would have to be right up there alongside ‘losing weight’ or ‘doing more exercise’ as the most popular choice. More often than not, these idealistic declarations quickly become wishful thinking and then fade into the busyness of everyday life.

To help you kick the New Year off with a positive outlook, here are some great ideas to help you tame the debt monster that may be taking over your life.

Be realistic about your budget

One of the mistakes that can quickly sap your motivation is to be too ambitious about how aggressively you can tackle your debts. The best place to start is to take a serious and sober look at your weekly budget. Review your spending for the last couple of months to get an idea of where there may be areas that you can realistically cut back on. You can then set out a budget to guide your spending on living costs and fixed expenses, which then gives you an idea of what discretionary amount you have left over. It is out of this amount that you can now make extra payments toward paying off your debts.

Which debts to pay down first

It makes sense to allocate more of your attention to paying down higher interest debts, such as credit cards. It is also worth considering whether you can consolidate higher interest debts into a lower interest loan. This will not only save on interest payments, but can simplify your situation and give you a greater sense of control.

Make use of interest free periods on credit cards

Many credit cards offer extended interest free periods. One strategy that many people employ is to combine a credit card with a long interest free period (say, 55 days), together with a redraw-style mortgage. All income is paid into the mortgage to help reduce daily interest charges, while all spending is made using the credit card. Just before the 55 day interest free period expires, a repayment is made from the mortgage account to the credit card, thereby avoiding credit card interest.

This method does take a significant amount of discipline and budgeting so seek advice on how to get this method to work for you.

Keep an eye out for low interest special offers

Many banks and lenders are now heavily promoting balance transfer offers in order to win business in the personal finance marketplace. It is not uncommon to see 0% interest being offered for 6 or 12 month terms if you transfer your debts to that institution’s credit card or loan product.

These can be useful tools to help you make inroads on your debt reduction, but only if you have the capacity to pay off the debt within the special 0% offer period. You also need to be aware of some other hidden dangers and conditions they may have:

Always check how long the low rate will be applicable for and what the rate will revert too once that period is over.

Be wary about new spending with the newly acquired credit card. This spending will not be covered by the balance transfer rate and may in fact be higher than the rate you were paying on your old credit card.

If you do spend on the new card, chances are that any repayments you make will be firstly applied to the 0% balance transfer amount before they are applied to new spending.

Check for transfer fees, as these can reduce or nullify the interest-saving benefits of transferring.

Don’t be afraid to seek help from your lenders

If you are having real difficulty in controlling or repaying debts, due to income dips or emergency spending, then don’t hold back from discussing your situation with your lenders. More often than not they will be happy to discuss adjustments to your repayments to get you through a tight spot.

Not all debt is bad

Debt may sometimes seem like a dirty word, but if used properly it can be a valuable tool in your wealth creation. When it is used astutely and integrated with an overall financial strategy, it can be a powerful tool toward achieving your lifestyle goals. This is where a professional financial planner can be of assistance in helping you manage and utilise debt to your best advantage.

Take the next step

To discuss your financial situation, make an appointment with a Bridges financial planner.

We have an established alliance with Bridges, to provide our customers with financial advice. Bridges has been helping Australians with financial advice for 30 years.

A Bridges financial planner will develop a plan specifically for you; one that’s tailored to your needs and circumstances to help you achieve your goals.

To make an appointment with a Bridges financial planner, call us on: 8088 2199  The initial consultation is complimentary and obligation free.

Bridges Financial Services Pty Limited (Bridges) ABN 60 003 474 977. ASX Participant. AFSL 240837. Part of the IOOF group

This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances and consult a financial planner or a registered tax agent. Examples are illustrative only. In referring customers to Bridges, The Broken Hill Community Credit Union Ltd does not accept responsibility for any acts, omissions or advice provided by Bridges and its Authorised Representatives.