In January I wrote about New Year resolutions and cautiously, with some trepidation, shared my own.
There is something daunting about publicising your hopes and ambitions – it automatically makes you feel more accountable for achieving them. But then again, maybe that’s the kind of motivation we all need.
Every year, thousands of people make resolutions to improve their physical and emotional health, no doubt spurred on by the modern medical mantra ‘prevention is better than cure’.
But how many of us think to apply the same logic to our finances?
Spiralling credit card debt is the financial cancer of our times and yet most of us will never seek advice until we have some pretty nasty tumours requiring serious lifestyle surgery.
Why take the risk?
Credit Card Cancer
There are currently 15 million credit cards in circulation in Australia and Reserve Bank figures released in January this year, showed our national outstanding credit card debt sits at a record $50 billion.
A recent article in the Sydney Morning Herald reported that the average credit card holder will be in debt until 2056 and that in Victoria alone, consumers incur an annual interest bill of more than $1.5 billion.
That’s a lot of cash.
Government Credit Card Reforms
In an effort to tackle the issue, new changes to credit card contracts will come into effect in July 2012 under new laws introduced by the Federal Government.
Here, for your information, is an overview of the changes you can expect as outlined on the Australian Banking Reforms website.
From 1 July 2012 changes to NEW credit card contracts mean:
- Credit card key fact sheets will provide a standardised layout of key information.
- You will have more control over the amount of credit you receive. When you apply for a credit card you will be asked to nominate a credit limit.
- Over-limit fees will be banned unless you specifically agree that your lender can charge you a fee for the service.
- You will be notified when you have exceeded your credit limit so you can decide whether to keep using your card or whether to make a payment to reduce your balance.
- Credit card providers will be required to direct repayments to the most expensive part of your credit card debt first – making it easier to reduce your debt faster.
From 1 July 2012 changes to ALL credit card contracts mean:
- Offers by card providers to increase your credit limit will be banned unless you expressly agree to receive them.
- Your monthly statements will include personalised information such as how long it would take you to pay off your entire balance if you only make minimum repayments. This will help you make more informed decisions about how much to pay off each month.
- Credit card providers will need to clearly show how their interest free periods work. This will make it easier for you to take advantage of these offers and benefit from the reduced amount of interest you are charged.
And what can you do?
Well, in short, protect yourself. Get smart about your credit debt by following these simple tips:
- Apply for your credit history here to find out where you stand. Denial is not an option!
- Leave your credit card at home when you go out. It sounds obvious, but too many people spend on impulse purchases they simply don’t need. Sleep on it!
- Beware ‘minimum payment’ figures on your credit card bill. They are not a ‘get out of jail free’ option. To avoid interest charges, you need to pay off the full balance each month. If you can’t do it, don’t spend it.
- Don’t be fooled by credit card reward schemes. Research shows that in order to earn a $100 shopping voucher on a rewards program, you need to spend $18,000. Worth it? I don’t think so.
- Store cards are not your friends! No form of instant gratification is worth the horrendous interest charges store cards incur. Would you buy that item if it were double the price? No? Well don’t, because that’s what you’ll probably end up paying for it.
- Avoid having multiple credit cards. If necessary consolidate your debt with the help of an unbiased professional.
- Research, research, research! Here are five of the most common pitfalls to look out for.
- Use cash whenever possible. Yes, you’ve heard it before, but I’ll say it again. It really will make a difference to the way you spend.
- Consider why you are in debt. Are you purchasing long-term assets or are you putting yourself under unnecessary financial pressure for simple, throwaway items? If it’s the latter, stop now!
Need further advice?
Most people do.
Together, we will come up with some smart financial goals so that by this time next year, you’ll be ready to throw caution to the wind and shout your resolutions from the rooftop.
Contact me on 0421 208 640 or firstname.lastname@example.org
Sincerely, Emma Lockwood – Passionate about taming your personal finances
Let’s get you back on track with your financial goals…