Cut it up and pay it off

In our line of work it is a disturbingly regular event to see families with credit card debts in excess of $30,000.

This level of “plastic debt” can have a very dramatic effect on the family budget.

Whilst a minimum monthly credit card repayment of 3% seems quite easy to handle at first glance, a $30,000 debt will require a $900 per month payment. A significant commitment.

Compare this with a current $30,000 home loan and the minimum repayment would be approximately $161 per month (see below).

Given the right set of circumstances, we can sometimes alleviate this type of cash flow burden by consolidating credit cards and personal loans into a residentially secured loan. However, if this solution is not be possible or desirable, there is one very effective long term solution.

“Cut it up and pay it off.”

“Cut it up” – This part of the solution is often seen as too difficult because shopping with a credit card is so convenient, however, the credit card organisations such as Visa and MasterCard now offer debit card facilities which give people all of the efficiencies of using a credit card without the temptation of using the credit.

“Pay it off” – This part of the solution can be made easier too. Most credit card providers have a direct debit system that will allow customers to make automatic fixed repayments (similar to a personal loan) on their credit card.

We believe that long term debt should only be used for buying assets that have a reasonable chance of appreciating. Holidays, cars, LCD screens and boats generally head the other way and should only be financed over a shorter term. There is nothing worse than a big debt and nothing to show for it.

This is a sensitive issue to bring up with people but if you know of anyone that would like to talk to us about getting their credit cards or personal loans in order, we would be more than happy to assist with some confidential and useful advice.

Michael Daniels, B.Com
State Manager NSW & ACT