Purchase and cash advance rates on some credit cards, particularly some low rate credit cards, have gone up by more than the official cash rate this year. Card issuers have also been changing their low-rate or zero-rate balance-transfer deals, shortening the periods for which the low rates apply. Many cards have purchase rates over 20 per cent now, with cash advance rates even higher!

The current high interest rates make it difficult for people to manage debt — especially if only making the minimum payment. In fact, just making minimum payments can make even the smallest balance over a decade to pay off and thousands of dollars in finance charges. It’s no wonder debt reduction seems so hard. Here are a few basic steps that should help you pay off your debt sooner, with less interest, and improve your credit score in the process.

• List all your credit cards and include the outstanding balance, interest rate and minimum payment
• Order the cards on the list so that the credit card with the highest interest rate is at the top, and the lowest is at the bottom.
• Total the minimum payments: this total will be your absolute lowest monthly payment. But you should pay more than the minimum in order to repay the debt quickly.
• As your payments come due, pay the minimum on each card except for the one at the top of your list. That one has the highest interest rate and is costing you the most money. Whatever additional money you can pay, apply it to that card.
• Continue this process until the first card is paid off. Repeat this process until all cards are paid off.

If you are struggling to manage paying off multiple credit debts from numerous providers then you might consider Debt Consolidation. It is one way to consolidate all your debts into one easy to manage repayment. Australian Financial Solutions can assist by you by providing an independent assessment of your financial position to determine whether debt consolidation is right for you. Contact us now!

What are the advantages of debt consolidation?

Having all of your debts and credit cards rolled into one big debt can be an attractive option especially when one considers the savings that can be realised:

• Save money by reducing the amount of interest you pay
• Reduce repayment periods
• Improve personal cash flow
• One easy to manage repayment

What should you consider before choosing debt consolidation?

• Match debt consolidation with a change in behaviour:

Debt consolidation may provide significant relief. However, it is not going to magically solve your financial problems. As new debts arise the likelihood of defaulting on these payments increases.

• Know the risks of debt consolidation:

Debt consolidation can bring you substantial benefits but can affect your credit score. Your smaller debts and credit cards will have built up a certain amount of credibility. When all of your smaller accounts and credit cards are closed in favour of a debt consolidation loan, your credit history is shortened thereby reducing your credit score. Also, having additional credit enquiries on your credit file reduces your credit score;  try to minimise the number of attempts you make to consolidate.

Whilst it’s important to understand the risks involved with debt consolidation, depending on your personal circumstances, consolidating your credit cards and other debts into one repayment may provide significant benefits in terms of savings and reducing the repayment term. Australian Financial Solutions can assist you by providing an independent assessment of your financial position to determine whether debt consolidation is right for you.

Contact us now on 1300 237 669 or enquire online for a Free Financial Assessment.

Watch out for these bad habits and be deft free.

1. Not making a budget

Budgeting is the most effective way to gain back control over your finances. Not only will it give you an idea about how much you spend and for what, it will also help you find out which expense you can trim to free some cash. It might as well slow down your compulsive spending habits and help reduce your debt. Check out our Budget Planner Debt Help Tool.

2. Paying bills with no particular order

By paying off the balances of your credit cards first, you could put yourself in deeper trouble. You should prioritise your expenses and debts and make a list of the amounts you owe by interest rate rather than by balance. After paying for your living expenses (house or rent payment), groceries and medical care should top the priority list. Next comes the car payment and secured loans. Working out a bill payment schedule and setting aside money for each pay cheque should help you manage your debt more smoothly.

3. Not checking your credit file

The information contained in a credit file can be used in determining a person’s credit-worthiness. Request a copy of your credit file today to ensure your credit history is accurate and up-to-date. There might be some errors. Just an example, payment marked late that came in on time could raise your interest rates, lower your credit score and affect your ability to obtain credit in the future.

4. Using multiple store credit cards

It might be tempting to get a store credit card in exchange for a 10% discount. But in the grand scheme of your credit history, these cards are not very beneficial. They might carry a highest interest rate you’ll be forced to deal with if you don’t pay off your balance each month. They can also negatively influence your credit score: just the act of applying for the credit card will put a small dent in your credit score. We recommend limiting the total number of credit cards you have to just two, if you can: one you can pay off each month and one with a low interest rate for those large purchases you’ll pay back over time.

5. Making credit payment late

Making a late credit card payment may not seem too big a deal. But it can end up being really costly and effect on your credit score, especially if you have a history of late payment. A payment that arrives at least one month due can throw your account into default and triple your interest rate. Your creditor will charge a late fee but might also notify the credit bureaus. In the end, late payment can have significant effect on your score, affecting your ability to get new credit in the future.

What the majority of lenders fail to realise is that the customers who have been charged this fee are the same customers who are most in need of the bank’s leniency and assistance.  Many Australians are finding the current GFC hitting them hard and their debts are rising all too quickly without the Banks adding to their problems.

At last one lender, the NAB, has decided to abolish this fee as of October 1^st.  Interestingly, the NAB spokespeople have been adamant that this is a genuine attempt to assist customers and the lost revenue – estimated to be $100 million pa – will not be re-couped in undetected other areas.

If this is so then the NAB deserve to be applauded.  Not only for looking to customers interests above their own bottom line but also because in taking this stance, it is helping to place considerable pressure on the other lenders.

Westpac and ANZ have scrambled to keep up with the fallout from the NAB announcement, belatedly stating their own intention to drop their overdrawn fees down to $9.  Whilst this is a step in the right direction, it still falls short of the NAB’s example of completely eliminating the unwanted fee.

Although the recession has “technically” been avoided, this news will not help those Australians who are still struggling with debt.

Many people still find themselves in jobs which are “at risk” or have been laid off already which means that the stimulus package monies have probably already been spent in the wake of rising household costs, petrol costs and credit commitments.

When it comes down to feeding the family or paying a credit card debt or loan, it is obvious some Australian families are having to make hard choices.  These decisions leave them feeling they have no option left but to file for Bankruptcy, not knowing that there are alternatives to bankruptcy, such as a Debt Agreement orLoan Consolidation.

“Life shouldn’t be a struggle.” says Natalie Levett, Associate Director at Australian Financial Solutions. “There are alternatives out there and people need to be aware that bankruptcy can be avoided as long as you get help sooner rather than later.”

The main causes of personal insolvency were unemployment and excessive use of credit. The vast majority of bankruptcies were non-business-related personal bankruptcies. Credit cards should not be seen as the simple cause of bankruptcies because unemployment or ill-health could contribute to a greater reliance on credit and therefore various reasons for insolvency.

The report showed the occupations most likely to be affected by bankruptcy, debt agreements or personal insolvency were clerical workers, service workers, labourers, and mine workers. Marketing and availability of credit cards leads to people spending more than they can afford. People are sometimes offered more than 10 times the credit they ask for, and then they are encouraged to spend it, or they are sent a pre-approved credit limit increase.

Bear in mind that once you go bankrupt, its very difficult and expensive to undo, and can have long term consequences.

Bankruptcy should always be considered as a last resort – there are other options such as debt agreements, that might be more suitable for you and are worth investigating.  It’s always a good idea to seek professional advice before going down this route.

The Australian Bureau of Statistics reported on the 4th of Feburary, 2009 that in seasonally adjusted terms (not including the impact of the government’s December 2008 ‘Stimulus Package’), all retail industries had a sales increase in December 2008, with Food retailing (+1.4%), Department stores (+8.3%), Clothing and soft good retailing (+5.8%), Household good retailing (+9.9%), Other retailing (+2.6%) and Cafes, restaurants and takeaway food services (+1.7%).

With the impending stimulus packages to be released over the next couple of months, and the government encouraging retail spend, some people may find themselves in a worse of position than before with over spending.

Yes, that’s right, too much credit.  It’s about time that we realised that our amount of credit card and other unsecured debt is just as damaging to our health as cigarettes and alcohol.  The associated stress and worry of interest and repayments are taxing on the readily employed with a reasonable income, not to mention to effects our out-of-control spending has on those recently affected by the GFC. To those Australians who find themselves now unable to meet their credit commitments, this is very much the overconsumption of credit.

It’s all too easy to point the finger at the over-eager banks and lenders for wanting us to spend the money.  We are, after all, asking for the money ourselves and then happily trotting off to spend it.  We must take responsibility for our actions and our over-consumption.

The problem is… what if you can’t?  Many ‘under-employed’ people have lost their well-paying jobs and now find themselves working in whatever capacity they can to keep a roof over their heads and food on the table.  The reduced income however, does not stretch as far as pDebtaying all those loans and credit cards.

“There are other options out there’” Natalie Levett of Australian Financial Solutionsis quick to point out, “Most people just aren’t aware that there are alternatives which sit between ‘all OK’ and the last resort of bankruptcy”.