Banish the bad debt habits

Debt won’t just vanish. So tackle it by ending some potentially expensive habits, writes

Anthony Keane

BAD habits around debt are draining household finances across Australia.

The nation’s $31.7 billion of credit card debt that’s accruing interest – often at rates near 20 per cent – is the biggest example of wasting money on expensive borrowings.

However, there are other debt habits that can be just as financially dangerous, warn budgeting and finance experts.

Consumer finance specialist Lisa Montgomery said one key habit was people failing to prioritise repayments.

“It’s interesting, mentally, how we think perhaps that’s not as important over Christmas and the holiday break,” she said. “We seem to prioritise social activity over the top of these debts, but they don’t go away.”

Some people believed it was okay to be late paying certain bills, Ms Montgomery said.

“Sometimes we don’t realise the effect, in particular, with our credit rating that’s becoming more important these days as there’s tightening of credit parameters by lenders,” she said. “Thinking that it’s okay is not okay.”

Missing debt deadlines was especially costly with energy bills, where people could miss out on discounts of 20 per cent or more – worth hundreds of dollars a quarter – even if they were just one day late, Ms Montgomery said.

Juggling credit card balances was another bad debt habit.

She said switching money between maxed-out credit cards wasn’t sustainable “and it’s costing you money”.

Sort My Money founder David Rankin said Australians’ “instant-gratification lifestyle” led to instant debt through credit cards, personal loans and also buy now, pay later schemes. “We are bombarded by ads telling us we can have everything now,” he said.

“What they don’t tell us, though, is that everything probably includes a heap of debt and years of loan repayments.”

Mr Rankin said the best way to beat the instant-gratification bad habit was to develop a delayed gratification mindset.

“Instead of applying for a credit card to finance your dream purchase, open a savings account,” he said.

“Set up a periodic payment into the new account to happen after each payday and enjoy watching your pile of money grow.”

Ms Montgomery said the simplest way to break bad debt habits was to understand where your money went.

This meant going back through three months of bank statements to get a clear picture of spending and how much money should be put aside for repayments.

“It’s a 30-minute exercise,” she said. “I don’t think we realise how simple it is.”