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Debt Management

The first thing to know about debt is that it is normal.

In developed countries people are individually in debt; and many businesses, small and large are also in debt. Most people do have credit cards, but it is not uncommon for 40% of credit card owners to pay off all their debt each month on a card.

Warning Signs

Debt is not a problem if you are able to easily and regularly make repayments; but when the following is happening, debt is likely to be a serious problem:

· You lose track of what you owe.

· Savings and assets are rapidly diminishing or have disappeared and you are surviving on debt

· You are delaying paying bills when they come due

· You are regularly receiving demands for payment of unpaid accounts.

If these signs sound familiar, a drastic change in spending habits will become essential.

You can manage your own debt and make better finance decisions by identifying your own spending style. Ask yourself the following questions:

· Are you constantly being charged over the limit fees on your credit cards?

· Do you pay credit card interest on a regular basis?

· Do you usually spend more than your budget?

· Do you buy on impulse?

· Do you set a budget and almost always stick to it?

· Do you always live below or above your means?

You can reduce and manage your debt more effectively by:

· Exchanging your current credit Mastercard/Visa for a debit Mastercard/Visa. This way you still have all the flexibility of payment a credit card offers (buying things online, buying tickets, paying bills) but you are using your own money instead of the banks. At present, most Mastercard debit cards have absolutely no fees as opposed to credit Mastercards which often have a yearly fee from approximately $49 up to approximately $100.

· Only taking the exact amount of cash you budgeted to spend on any given day with you (leaving all other cash and cards at home). You can’t spend what you don’t have.

· As you pay off credit, reduce your card limits.

· Do not make any purchases unless you have the cash. If you want something, save the cash, then get it. Leaving your credit cards and other banking cards at home will ensure you don’t buy on impulse.

· If you need a new car, check the personal loan rates and check your home loan rate. Often your home loan rate is much lower than personal loan rates, and if you have a redraw facility on your home loan, you may be able to fund your car purchase using this at a much lower interest rate saving thousands. Remember that by doing this, you are reducing equity in your home, so see your accountant first to ensure it is the right decision for you.

· Split up your bank accounts to keep better track of your funds. Have separate accounts

· for savings, bill payments, emergency funds, everyday expenses, medical. Ensure you do not have instant card access to any of these accounts except everyday expenses. Or do not carry cards with you. This way, you will know exactly what you have set aside for each type of expense at any one time. It helps you to get ‘real’ about your spending.

· Reduce interest payments on your debt including credit cards, by doing research and

· contacting your bank. Find all other institutions offering low introductory interest rates for new customers, and note down their names and offers. Many offer zero interest for the first 6 months. Then call your own bank and request the same deal or at least a much better rate than you already have. Tell them you will change banks if they cannot improve your current rate. They may either match other deals or at very least, reduce your current interest rate there and then over the phone, saving you potentially thousands in interest payments a year. Just imagine if you got your credit card interest rate cut from 18% to 7%, that extra cash in your pocket could go toward reducing that very debt. Dramatic reductions can really can be as simple as a phone call.

Article by Staff of ACS Distance Education

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