Avoid the Debt Trap

how to avoid debt traps

It’s not out of the norm to hear that 2009 was a hard year financially for many people and businesses – but now that the credit card bills have began to roll in from the holiday season, it‘s very apparent just how much debt people dug themselves into last year.

Over drinks the other night I noticed a friend – who usually pays cash for everything – was using a credit card to pay for her cocktail, I was taken aback and asked her why; she replied “after my pay cut last year and interest rate hikes on my mortgage, I have chewed through my savings and now I mostly use credit”. She then went on to explain that as of October last year she has been making her monthly mortgage repayments on her credit card, as she has been using her weekly income to pay for other bills, everyday spending and her minimum monthly card repayments. Quite simply put, her repayments are approximately $2,200 a month, so she is already $11,000 further in debt – and that isn’t even taking into consideration the credit card interest she is accruing.

Australian Debt Trap

This then became the topic of conversation, and the more that my friends began to talk, the more I realised how far in debt so many of them were. Working for a debt consolidation company, I found myself giving them advice on how to better manage their debts – things that I am so used to hearing on a daily basis were eye-opening to them.

Arriving at work on Monday morning, I wanted to share my experience and help more people ‘see the light’ to their debt problems and make changes now, so that 2010 becomes a better year financially for all. It’s important that we recognise that there is not one type of person struggling with debt these days – it’s almost everyone.

The first thing I suggested for them to look into was to transfer their credit balance to a card with a better rate. Take ANZ for example; they currently have two low rate cards on the market, with six months at 0% interest on balance transfers. Regardless of having one or numerous credit cards, transferring your balance(s) to a card with a lower rate can save you hundreds, if not thousands of dollars.

If you’re happy with your current credit provider, but need a lower rate, then consider negotiating with them. Credit card companies are very aware of what their competitors can offer consumers, so use it as a bargaining tool to lower your current annual percentage rate (APR), and if they aren’t willing to accommodate your needs, then consider transferring your balance to another provider.

To get on top of your repayments and reduce the total amount, you need to find the money to ensure you are always paying more than the minimum repayment and that you always pay well within the due date to avoid incurring overdue fees. If you ignore these two points, you’ll find it extremely hard to pay off your card, as you will always be paying off the accumulating interest.

If you are already struggling at the end of the week to find money for repayments, you need to make lifestyle adjustments to increase your cash-flow. It might mean that you need to forgo that night out on the weekend, or make budget cuts to your weekly spending habits, such as bringing lunch to work everyday, instead of buying it.

Another solution that people often neglect to consider is to increase your income. If you can’t do this through your current employment, consider making something that is a hobby into something you can profit from (i.e. if you are a good cook, consider starting a small part/time catering business for weekend functions or perhaps you are an arty person, so make some ‘stock’ and sell it at a weekend market).

If all else fails then you need to consider taking out a debt consolidation loan – they are perfect for people with multiple credit cards, store cards and personal loans, and could drastically reduce the amount of interest you pay. Helen from the Australian Lending Centre is just one of our friendly consultants with years of experience in helping people to consolidate into a better loan – give her a call on 1300 138 188 to find out how she could tailor a solution for you.

Make ‘getting out of debt in 2010’ your mantra. Do everything you can to get ahead financially – make lifestyle changes, change the way you make repayments, take a look at your loans and ensure you are getting the best deal possible for your situation. As Benjamin Franklin once said “A penny saved is a penny earned”. Trust me; you won’t regret it next year.

Get In Touch With Us Now!

Share this post!