Debt trio to cull in 2019
Many people arrive in the new year in debt, so make a resolution to pay it off, writes Sophie Elsworth
A FESTIVE blowout is likely to have added salt to the wound for many Australians already saddled with debt.
Whether it’s credit card debt, buy now, pay later schemes or mortgages, setting out a plan of attack to reduce these in 2019 is critical.
Here are some realistic ways to get ahead once and for all.
CREDIT CARDS
Quality manager Kalah Pryor, 33, amassed $4000 on plastic debt for expenses from her wedding last year, and her husband is also carrying a similar card debt.
“In the last year I’ve tried to pay it off, but then I had the wedding and I needed my credit card to pay for that,” she said.
“I paid for hair and makeup for six bridesmaids. I’ve got a $5000 limit and I’ve managed to pay $1000 off.”
Ms Pryor said she was looking at a balance-transfer deal so she would stop getting stung by her card’s high interest rate of 21.49 per cent.
“I get paid every month so I put a portion of that on the card and I don’t use it,” she said.
Balance-transfer deals allow customers carrying debt to transfer debt from one card to another and revel in interestfree honeymoon periods.
Financial comparison website Ratecity.com.au spokeswoman Sally Tindall said these deals gave customers “breathing space, but they’re also full of traps”.
“Cancel your old card, don’t use your new one and pay it off well before the due date,” Ms Tindall said.
BUY NOW/PAY LATER
Latest figures from the Australian Securities and Investments Commission found users of schemes such as Afterpay and Zippay climbed from 400,000 in the 2015-16 financial year to two million in the 2017-18 financial year.
This has resulted in shoppers being left with a massive
$903 million in outstanding balances waiting to be paid off.
Rising Tide Financial Services managing director Chris Browne said, for those getting caught up in the schemes, “it’s time to embrace delayed gratification”.
“If you’re an impulsive overspender, steer clear of these schemes, because you’ll be left with a nasty debt down the track and potentially goods that you never really needed in the first place,” he said.
Mr Browne suggested shoppers set up a regular direct debit savings account and, when enough money was saved, use it to then purchase items they wanted or needed.
HOME LOANS
About one in three Australians has a home loan debt and, while interest rates are at record lows, customers should be maximising their ability to pay down the principal.
CUA chief executive officer Rob Goudswaard said paying extra was the key. “Make extra repayments if you can afford it, or make repayments more frequently – weekly rather than monthly, for instance,” he said.
“Paying just $50 extra per month on a $350,000 home loan could potentially save you around $14,000 in interest over the life of the loan. Increase that to $200 per month and you could save over $47,000 in interest and pay your loan out five years early.”
Many owner-occupier rates – both fixed and variable – are under 4 per cent.