Debt and Money Management

27 April 2004

Information in the following fact sheet has been provided by Jan Pentland, Financial Counsellor at Eastern Access Community Health Financial Counselling Service and Chairperson (AFCCRA). Please note: this is intended as a guide only.

Tips for debtors

• Get an accurate picture of your finances, including assets, debts, income and expenses. Consider whether you can afford extra credit. More borrowing may put your assets such as a house or car at risk.
• Resist the "buy now, pay later" hard sell: if you buy on credit ask yourself, "Do I really need it?".
• Don't assume that because creditors will lend you money, they know you can afford it — their assessment processes are very poor.
• Be careful of offers to automatically increase the limit on your credit card — you may just be getting into deeper debt trouble. Don't get a loan to pay out your credit cards and just run them up again.
• Credit card debt is expensive — if you only paid the minimum monthly payment and borrowed nothing more, your current debt could take you over 20 years to pay it off.
• Don't sign up for anything you don't fully understand whether it's a mobile phone, a credit card, insurance or a refinance of your mortgage. Ask questions until you do understand; take a day to think about it; take the contract away with you; get independent advice.
• If you are going to buy on credit, shop around for the best deal for the credit just as you would for the goods. Credit offered at stores and car dealers usually has a high interest rate.
• If it sounds too good to be true, it probably is! For example, 12 months interest free, no payments for two years, pay off your home loan in five years — there's likely to be a sting in the tail. They want to sell you the product but they won't tell you what's in the fine print.