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October 23rd, 2013
Debt can be a wonderful slave but an unforgiving master.
Australia, in common with many western countries, has an extraordinarily high level of consumer debt. The number of new credit card accounts opened in the 12 months prior to December 2012 increased by 210,000. But the scariest figure is the accruing interest on credit cards – at the time of writing is in excess of $6,300,000,000 per annum (that’s over six billion dollars) and growing by the second! You can see why banks LOVE credit cards!
Please don’t get it wrong, not all debts are essentially bad. Properly managed debt can be a great tool. Most people need it to help them purchase their first house and other necessities in life. It is also very important in investment planning, enabling you to purchase income-producing growth assets, such as shares or property, to boost your long-term wealth. In this case the interest may also be a tax deduction.
The problem arises when debt is used for basic living costs or purchasing depreciating assets. This is further aggravated when the interest rate applied is too high and there is no planned debt reduction program in place. When interest rates increase most people focus on their mortgage rate and forget that the interest on their credit cards sneaks up too. Most major cards are charging around 15-20% with many customers paying only the minimum amount and sinking further into debt.
If you are not paying off your credit cards in full every month, have other high interest loans, or your current level of debt is keeping you awake at night, you need to seriously consider your financial direction. Follow this simple plan and take control of your debt before it takes control of you:
1. Restructure your debt by consolidating what you owe at the lowest available interest rate. Keep ONE credit card and cut up the rest!
2. Prepare and keep to a budget to ensure your cost of living is within your means and put a debt reduction program in place.
3. Ensure new loans are only for a productive purpose, such as investing, and can be justified by potential future profit.
4. Beware of “interest free” offers and make sure you can afford to pay off the entire balance by the end of the contract. A lot can happen in 50 months so don’t get behind on your payments. In the same vein, beware of 0% interest offers when purchasing a motor vehicle as the dealer will ensure you pay the full recommended retail price (RRP) and will provide no discounts.
5. Avoid the mental attitude of “keeping up with the Joneses” – Just because they always have the nicest stuff and enjoy the finest things, it does not automatically mean that they are building wealth. Often people with the flashy cars and big houses have very little positive net worth. Conspicuous consumption beyond your capacity may rob you of your future wealth.
6. Seek professional help from a financial adviser to plan your financial goals and how to achieve them. For more help, you may contact us at firstname.lastname@example.org or 1300-MEDIQ (63347) to book a free initial appointment with our qualified medical financial adviser.
All of the above steps will make for a much easier life in future years … not to mention sleeping better every night.