A stressed couple trying to work out how to manage their bills and household finances.
A stressed couple trying to work out how to manage their bills and household finances.

How to avoid a debt trap

DEBT-laden Australians admit to burying their head in the sand to avoid facing the reality of paying back large sums of money owed.

While many shoppers have arrived in 2018 with a whopping credit card debt in tow, new data from debt solutions agency Fox Symes has revealed one in four desperate consumers admit they had tried to resolve their debt woes by simply ignoring calls by creditors chasing money.

Cardholders need to watch spending on plastic.
Cardholders need to watch spending on plastic.

But of those who had successfully paid back their debts, 23 per cent vowed they would be more careful with how they manage their money and live more frugally.

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Fox Symes executive director Deborah Southon warned those relying on credit to remember one critical thing, "you're spending money you don't have."

While ignoring debt is delaying the inevitable, there are simple measures consumers can take to help ease monetary pain the new year.

Here's some suggestions.

Paying off debt

New research by lender ME found paying off debt will be a priority for Australians in 2018 - 21 per cent plan to pay off money owing as fast as possible.

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This is behind the number one priority of paying off a mortgage (26 per cent), building up a rainy day savings account (23 per cent) and saving for a holiday, car or other expenses than a home (23 per cent).

Those with high interest debts such as credit cards should focus on these first, because often they attract interest rates above 20 per cent - a big difference to home loan interest rates that are around four per cent.

Focusing on credit card debt is important because cards often attract interest rates above 20 per cent.
Focusing on credit card debt is important because cards often attract interest rates above 20 per cent.

Another option is to use balance-transfer deals - where you transfer one card debt to another card that has a honeymoon interest-free period - as these can also help pay back the debt quicker.

Contact your provider

If you're in financial trouble it can't hurt to ask for a helping hand.

Utility providers can give you an automated additional one to two weeks to pay your bill just by going online and requesting an extension or simply phoning them up and asking.

For those paying off a mortgage, finance providers can give you a repayment holiday but lender ME's head of home loans, Patrick Nolan, said these are only allowed if customers are ahead of their loans.

ME’s head of home loans Patrick Nolan said repayments holidays on mortgage are available on a “case-by-case” basis.
ME’s head of home loans Patrick Nolan said repayments holidays on mortgage are available on a “case-by-case” basis.

But those without a buffer can still ask for help.

"Customers who are not in advance of their home loan repayments and are experiencing financial hardship can chat to their bank about their options,'' Mr Nolan said.

"ME has a hardship policy that can be applied to customers on a case-by-case basis."

Have a plan

Accumulating more debt will only leave you in even more hot water as you try and pay it back.

Tribeca Financial's chief executive officer Ryan Watson said it's critical to have a cashflow plan, not a budget, to minimise financial stress in 2018.

Tribeca Financial chief executive officer Ryan Watson said it’s important to watch your cashflow and have a plan.
Tribeca Financial chief executive officer Ryan Watson said it’s important to watch your cashflow and have a plan.

"Structure creates freedom, for example depositing a portion of your salary each week into an 'everyday access' account will only allow you to spend what you have in the account,'' he said.

"Setting a goal is always important and the only way to really achieving something.

"We aim for our clients to generate at least a 20 per cent household profit each year."

Penning out all your weekly expenses can also be a good way to see what areas you can cut back on save, particularly on discretionary items.

@sophieelsworth



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