How to get credit cards and other debt under control
Simple steps to get out of debt and stay out of debt.
If you feel like you are drowning in debt, you are not alone. According to the Australian Bureau of Statistics, the average household debt in 2021-22 was $261,492.
That amount is typically lower for seniors, whose debt is offset by “deposit assets” including bank savings, and, in many cases, the knowledge that their major debt – the mortgage on their home – has been paid off.
But others find themselves on a fixed income and burdened with mortgage or house-rental payments, as well as interest owed on personal loans and credit cards.
Credit cards can be useful financial tools, especially if they are paid off within the interest-free window. But when interest does kick in, it can be at an eye-watering annual rate of 19 or 20 per cent, making it harder and harder to clear the debt.
When you find yourself continually struggling to pay off the interest on your cards, without even tackling the principal amount borrowed, then you are in trouble.
Prioritise payments
When you find yourself faced with a pile of bills and you can’t pay them all at once, decide which are most urgent.
Your mortgage or rent should be your first priority, followed by essential utilities, such as electricity and water.
With credit-cards, your aim should be to make at least the minimum payment before it is due.
The first step towards tackling your debt is knowing exactly how much you owe. It may be a painful process, but you should write it all down: card payments, utility bills, insurance, car registration, whatever.
Don’t forget to include the “hidden” bills, such as parking or traffic fines, and any regular repayments you may have signed up for and forgotten about, such as club memberships, software licences or streaming service subscriptions.
On the other side of the coin, you need to know exactly how much money you have at hand, and how much is likely to come in.
Knowing the numbers will allow you to implement a strategy to pay off what you owe and find a better way to manage your money in future.
If you are at a loss, professional advice is available at no cost.
National Seniors Australia offers financial literacy counselling to members. The Financial Literacy Counsellor is an independent, confidential service. The National Debt Hotline on 1800 007 007 can also offer assistance.
If you are unable to make payments on your credit card or other loans, contact your bank and inquire about your options, including further time to pay.
Depending on the level of your debt, refinancing may be an option. This could be through debt consolidation, where your cards are cancelled (or their credit limits reduced significantly) and the amount owed is rolled into a personal loan, usually at a lower interest rate.
Be wary about quick-fix solutions such as “pay-day loans” from non-bank lenders, which can carry enormous interest rates.
Some banks offer a balance-transfer service to encourage you to switch to their brand with the promise of an extended period of interest-free repayments on a new credit card.
This may seem attractive but think carefully about acquiring a higher credit limit if you haven’t modified your spending habits.
Can’t get a card?
National Seniors Australia Chief Operating Officer Chris Grice notes that some retirees have been either denied credit cards or had their credit limit capped, even though they have the assets to cover their repayments.
“There are two types of card customers — revolvers, who make the minimum payment every month, and transactors who pay their card in full every month,” he said.
“Banks like revolvers, as that’s the customer group where banks typically make their income.”
Mr Grice said seniors may want to think ahead and apply for a credit card while they are still working and more likely to get approval.
This is especially important in respect to a couples’ situation where one of the partners has a card, the other doesn’t, and something happens to the cardholder.
The credit rules that are set by the banking regulator may prohibit them from getting a card in their own right as they have no credit history in their name and inconsistency in establishing an ability to service the credit debt.
Assuming you can get things under control, you need to ensure that you don’t get into the same situation again.
The first step is to create a budget that begins with every expense you anticipate.
It’s convenient to work month-to-month because many bills arrive monthly, and credit-cards work on monthly cycles. However, you may prefer to draw up a fortnightly budget to coincide with your pension payment or super drawdown.
Don’t forget your annual or quarterly bills – such as insurance, rates, subscriptions, and car registration. You’ll have to put some money aside each month to make sure you can afford to pay these when they come due.
You should also allow a little extra, as it’s likely that those bills will go up.
Reviewing your expenses will also help you identify your needs – starting with food and shelter – from your wants.
You may find you are paying for things you can do without entirely, or there are areas where you can make savings – for example, by changing to a cheaper provider or better plan for utilities such as electricity, gas and internet.
The aim of this exercise is to identify your “debt money” – the amount you will need to service your debt before you can start thinking about other spending.
When you’ve determined what’s left, it’s a matter of drawing up a budget – and, perhaps easier said than done – sticking to it!
All insights and information provided should be considered general advice for educational purposes only. As we are unaware of your personal circumstances, the information in this article should not be misconstrued as personalised financial advice. We recommend seeking advice from a qualified financial professional before making any major financial decisions.
