Well…I figure if James Cameron can spend umpteen millions on Avatar, then at least I can pay $15 at the movies (or $25 to purchase the DVD).       

But it got me thinking about how people spend(and avoid spending) their money (and what the definition of tightarse is).

 Just so we are clear – nomoney.com.au is NOT about being a TIGHTARSE.

I think that is why most young people avoid learning about finances. They either assume:

1. That learning about finances is boring and hard. Or they assume that:
2. it will turn you into a tight-fisted, scrooge mcduck who doesn’t go out/buy stuff because it costs money.

What nomoney.com.au IS about is being SMART with your money so that one day you will reach your goals.

Smart Saving

Being SMART means saving some of your money. Set a goal of at least 10% (see my article The one trick to Saving).

But if you are like most (and I fall into this category) – you spend what is in your bank account.

A few ways I try to spend wisely

Obviously my ways might not work for you (you may love your lunch out). If not you may wish to think about other ways.

I don’t purchase coffee – my work has a coffeemaker.

I bring my own lunch – I just buy a loaf of bread each week and either spreads or salad bits.

At the shops – I look at the specials

I try to plan my nights out – so I can avoid taxis where possible

A few ways I just spend money (and don’t worry too much!)

I also thought I’d include a few ways that I don’t worry if I’ve spent too much – as life is too short!

-          Having fun with friends – going to the pub, out to dinner, having fun.

-          Car costs – insurance, servicing, petrol, etc.  It is pretty expensive running a car – but that is the price of being able to go where you want.

-          Gifts –charity, presents for friends.

You might be just looking for your first credit card, a balance transfer or a better deal.

Balance Transfer

Since I still have a balance on my AMEX I decided I should transfer.

So I applied for a new credit card last Monday (and applied to transfer my AMEX balance onto the new card). About 10 days later I have received my new card and have transferred my balance to a interest rate over 10% lower for the next 6 months.

Doing your homework – Comparison Sites

The good news is – there are heaps of sites to compare credit cards (as financial institutions pay for signups).

Picking the best card for you

There are a number of factors to think about including:  Annual Fee, Rewards, Balance Transfer conditions, etc.

I originally got a credit card with a nil annual fee.  But then I went on the rewards program. The cashback I got from the rewards was more than the annual fee.

But an annual fees add to your costs – and can make the benefit of a lower interest rate be wiped out in a few years.

How much will it save me

I ran my calcs through a spreadsheet I made. Obviously if you make minimum repayments on your credit card you pay astronomical interest (and the.

But even If I managed to pay the debt off in a year – I would still save about $300.

Some Comparison Sites

 http://www.whistleout.com.au/CreditCards – once you answer the questions about what you want the left hand toolbar allows you to refine your search.

http://www.comparecreditcardsaustralia.com.au/ – The site looks pretty good although I picked up a few minor errors in their information.  E.g. the Citibank card didn’t have an annual fee but on the Citibank site in the fine print showed $49 then $89 in the 2^nd year.

http://www.creditcards247au.com/ – nice listing of benefits, http://www.creditcardcompare.com.au

http://mozo.com.au/  has credit cards and other comparisons

Soon I’ll write another part to this as I plan to transfer my balance to another card (detailing how to pick a good credit card).

My Story -I still have a Credit Card debt

In November I ended up with a huge amount on my credit cards (partly because I paid nearly $4k for a hair regrowth program see Christmas-spending-hangover for more detail). While I’ve experienced some hair growth – I’ve experienced some credit card interest as well!

I have been able to use  some tips I wrote about to help reduce my credit card debt.

Ways that All Credit Cards will screw you (if you let them)

Trick #1 – Interest Free Days don’t count when you don’t pay your balance on time

The 55 interest free days that you get on purchases – are only when you pay your total balance on time. If you are $1 over or a day late – then you will have interest charged on the balance (perhaps for the month). Also next months’ purchases will be charged interest until you pay the total balance.

 Trick #2 -One day late makes all the difference

Late payment (or payment less than the required amount) means: Interest will be charged on current purchases (and ALL NEW PURCHASES). Also interest accrues daily (by the way you want interest in a bank account to accrue as often as possible and interest on debt to accrue least often).

Unfortunately (and this is a rookie error on my behalf) I got paid on the weekend and I make the payment on Monday night, which, as it turns out is the due date. Paying one day late means I will probably get charged interest AND  (perhaps more importantly)  all of next months’ purchases will accrue interest from day 1–I hate credit cards.

Trick #3 – Forget to pay the minimum payment

I have missed the minimum payment once or twice – I’ve received a $25 penalty.

Trick #4 – Making cash advances (taking cash out from your credit card rather than paying for purchases)

Cash advances commonly have interest charged on day 1. Also cash advances may be charged at a higher interest rate than purchases.

Ways that SOME Credit Cards will Screw You:

Terms and Conditions

Different credit cards will have different terms and conditions. Many of the details in the fine print may be different from what you would assume looking at the main offer – these details are what are going to screw you over.

Some tricks in terms and conditions:

Trick #5 Different Interest Rate for Balance Transfers

The balance transfer rate may be different to the purchases rate at the start.

Trick #6 Interest Rate on Balance Transfers Changes after intro period

You get the cheap rate for the first X months – but most cards will then put the rate at a high percent (say 20%). This is despite the card saying that purchases attract lower rate of say 12%.

Trick #7 Annual Fee waived in first year

They say ’signup now for  no annual fee’- but then it turns out that you will be charged X annual fee after the first year (see below for Citibank example).

Other Ways that Credit Cards will screw you

The Annual Fee

I don’t think that credit cards should charge an annual fee FULL STOP. Because even if you don’t pay credit card interest – the Credit Card company still makes money.

How? By charging merchants. This is perhaps one reason why credit cards are not accepted overseas as much as Australia. Don’t get me wrong – you go to a major service station overseas and they will let you use your credit card. But a lot of small stores were mainly cash.

This article is 2/2 of HELP-HECS. See http://nomoney.com.au/hecs101/ for part 1.

I have spent time to try to make this as simple as possible (with a few diagrams, etc.). But I find that doing calculations makes me understand how things work better. So for those who sign up to the no money newsletter I will send a link to download the HELP-HECS calculator – then you can look at what to do based on your own circumstances.

 A simple diagram of how HELP-HECS works (explained in part 1) is attached Are you Eligible for HELP diagram.

When you start uni you can either:

1. Get a 20% discount for fees paid upfront over $500 (up to the whole fees amount)

2. Defer your fees into a HELP-HECS loan (note you can still get 10% discount for voluntary repayments over $500 later)

The Big Question: Should I voluntarily repay my HELP loan?

The answer depends on your circumstances (of course!). But the discounts are appealing. 

Pay Upfront (20% discount): If you can afford to pay upfront you should consider it. A 20% return is a pretty good investment! (Scotts note: My parents paid my HECS upfront. although I paid them 10% of my salary in board. We worked out they paid $5,000 more in uni fees than I paid them in board.(thanks Mum!)

Make a $500+ Voluntary Payment (10% discount) An automatic 10% return on your money isn’t bad…but there might be better plans for your money. Instead of repaying a HELP loan that only charges 3% interest (13% better off) you might consider:

1. Save for a home – Buying a home means your deposit of 20% will control 100% of the house.If the home increases in value you can gain large percentage returns on your initial cash deposit.

If you don’t expect to own a home for 4-5 years – Start a First Home Saver Account – they pay 17%plus bank interest.

b. Leave a buffer: – If you are planning an overseas trip it might be cheaper to leave the money as savings – rather than repay HELP and put the trip on your credit card (its better to pay 3% HELP loan interest than 20% credit card interest).

Reasons FOR voluntary repayments to your HELP-HECS

-Getting a 20% or 10% discount

- You might probably end up blowing the money on junk anyway wouldn’t you?

Reasons not to repay HELP if:

 - If you have worked out a plan (maybe using one of the reasons above), where you think you might be better off at the end of the day.

If you are happy keep a buffer just in case. (this might not even cost you as you pay 3% HELP interest and earn 5% interest less tax)

Once you get a job

See the What does tax have to do with HELP diagram 

Tips on paying HELP back

1. If you have a job, consider whether or NOT to tell your employer about your HELP debt

If you tell your employer that you have a HELP debt (item 7 on the attached Tax File Declaration form that your employer gets you to fill out), then your employer will withhold extra from your salary to help cover the HELP repayment (so you don’t have tax to pay when you lodge your tax return.)

Benefits of telling:

+Forced savings towards your HELP debt

Benefits of not-telling:

+Interest on your savings for a year plus (especially if you have a tax agent)

+Could save cash to make voluntary payment (although note a voluntary payment doesn’t stop a payment due when your tax return is lodged)

Conclusion: So although the extra money that your employer would withhold is a good form of ‘forced saving’, you may choose not to tell your employer if you are disciplined enough to save the extra money yourself. If you set up a transfer to a high interest account – you may be better off.

2. Last Year Payment – Take advantage of the 10% discount

 As mentioned, voluntary payments over $500 will attract a 10% discount.  (Note that: When you lodge your tax return and have to pay HELP, this is NOT a voluntary repayment).

So one strategy, particularly if lodging this year’s tax return will bring HELP to $0, is to pay the amount BEFORE you lodge your tax return.  For example, if you owe $1 650 then you could pay $1 500 before lodging your tax return.  If you lodge your tax return, the full $1 650 will be added to your tax (and reduced from the loan.

If you like this article you might also like to read my article Freebies and Discounts and Why companies offer them

Resource – see the letter I sent Credit Card Dispute Letter)

Types of incorrect charges on your credit card

OK firstly – lets clarify a few situations where you might look at your credit card statement and think you have been incorrectly (or unfairly) charged):

1. Misleading Charge (my example which I will share – I signed up for an e-book costing $2 but then the company    started charging $49 a fortnight to your credit card) If you are interested it was a facebook ad which led me to www.emillionaire.com site.

 2. Regular Charge you want to get out of (automatic monthly gym fees you want to stop paying)

 3. Fraudulent out of nowhere (you have no idea why there is a charge on your credit card and you have no idea about the company)

 4. Fraudulent from existing company (where you know the company but never authorised the subsequent charge)

Steps 1: QUICKLY Check that the charge is wrong

For Type 3 above (when you check your credit card statement and go… what the hell is that?) you might want to try to remember if you have purchased the amount.

HOWEVER – it is better to be safe than sorry. Lets say that you find a credit card charge for $50 that you don’t know what it is for. After you ring up and cancel your credit card you remember it was legitimate.

All you have lost is a few hours of time (in calling the credit card company, telling your direct debits of the new card number, etc) and inconvience of not being able to use your card for about 2 weeks while they send a new one.

Step 2: Email/Send a letter to Cancel the Service (if applicable)

Possibly for types 1, 2 and 4 above – if you have entered into an agreement try to cancel as soon as possible. Financial Institutions usually won’t refund your money unless you have cancelled.

Gym fees – Not sure exactly what to do here (google search it!) as gyms have been notoriously bad at letting you cancel your monthly agreement. Or they cancel the agreement and charge you a ridiculous cancelation fee like $150.

My $2 e-book – I emailed the company once I discovered 2 x $49 charges. I got a response later that week saying I had been cancelled. I also requested that they refund my money.

Note – I wouldn’t just call them – by sending an email/letter you have evidence you can show to the credit card company.

Step 3 – Call the Credit Card company

Depending on the situation you might wish to:

A. Find out how to report the charges to the credit card fraud department and request a refund.

B. Cancel your credit card (in my example I had 3 charges go through before I cancelled the card)

Step 4: Send a letter to credit card fraud department & request (if applicable)

If the company won’t reverse the charge (or charge extra charges after you cancelled) you should write a letter to the fraud department

(see the letter I sent here Credit Card Dispute Letter)

My example

In my example the bank didn’t refund the 1st $49 charge

Ideas to keep from getting stung

Tip #1 Check Your Credit Card and Bank Statements online every few weeks.

I have online banking for all my credit cards and bank statements. This allows me to check my balances/statements online and see if there are any incorrect credit card charges.

Tip #2 Don’t sign up for free products unless you are sure they are free (do your homework!)

I swear I read through the terms and conditions! And the CD was $2 US (which it was) – but then they charged $49 a month (I suppose when it sounds too good to be true – you should search google and check it out).

But there are a lot of legitimate people out there as well as a few fraudsters -I have purchased a few things through ebay and the net  and signed up for heaps of newsletters with no problems.

Part 2 (to be posted Monday 8th March 2pm) will be about:

1.Whether you SHOULD repay your HELP-HECS loan and

2. The Best Ways to reduce your HELP-HECS loan

I have also almost finished a HELP  calculator (to work out how long it will take to repay your debt) I will be providing a free copy to those who are signed up to my newsletter (Sign up at www.nomoney.com.au/newsletter)

How HELP-HECS Works

 - A bit of information about university fees.

So you get a good UAI in your HSC and you are off to Uni. 

If you have gotten in to a course – you will have usually got into a Commonwealth Supported Place. Most students are in these places.   The government actually pays for part of your Uni degree by offering cheaper fees (i.e. full-fee paying pay a lot more than Commonwealth Supported students).

 The other option is a full-fee paying place. With full fee paying you pay the full amount. Unlike HELP students you don’t get Government cheaper fees or a HELP-HECS loan).

 So when you get a job and realise how much is taken out of your salary to pay tax – at least remember that the government has offered you cheaper fees at uni (which the Government pays to help fund Universities).

A bit about HELP

 HELP or Higher Education Loan Programme is where the government pays your uni fees (and then you pay them back).  I think it is a pretty good deal – cheap interest, only have to repay the loan if you earn over a certain amount (more on this below).

So there are 3 options to ensure the Uni gets paid for the subjects you are doing:

 1. HELP Loan –  Defer all the course fees into a HELP loan  (Note you will still have to pay a few hundred dollars in other items like Student Levies to cover sporting/association funding). So the Government will pay the fees to your Uni.

2. Pay cash -  Pay 100% of your course fees (you get a 20% discount for paying upfront – so instead of $5,000 fees added to HELP debt – you can pay $4,000 cash to the Uni)

3. Part Cash, Part HELP Loan – Pay a part of the amount (note if you pay over $500 you get a 20% discount)

 HELP Debt – How does the debt work?

 So just an example of how it usually works

 1^st Semester Comes up – You elect to defer (and get a HELP loan). You have 4 subjects @ $750 – you have a HELP debt of $3,000.

 You do this for the 3 or 4 years you are at uni. You then have 3 years x 2 semesters = 6 semesters of $3,000 = $18,000 HELP debt.

 The government charge interest on the debt of a few percent 2-3%. This amount is usually added to your balance in May (note this for the ideas about HECS later).

 Your HELP account is administered by the Australian Taxation Office (ATO for short).You will get a statement from the ATO about once a year – however you can call them to check your balance or work out how much you have to pay to pay off your debt (As payments over $500 attract a 10% discount – e.g. $500 reduces your HELP debt by $550)

When do I have to pay the HELP debt back?

When you lodge your tax return over the HELP repayment income (see below) a percentage of your taxable income gets added to your tax bill (to repay part of the HELP debt).

For example, after uni you get a job earning $45,000 a year. Based on the table below when you lodge your tax return you are required to pay 4% of your HELP repayment income – or about $2,000.

(HELP Repayment Income is similar to taxable income but designed to add back rental property losses + salary sacrificed super + fringe benefits + and a few other things so that you can’t buy a negatively geared rental property to  your income to avoid paying HELP).

Tune in next week to see whether you SHOULD repay your HELP debt and the best ways to repay your HELP loan

Note:This article does not include practical money tips – which is the dream behind nomoney.com.au. (I’ll be back on track next week with the lowdown on HECS, tips for new workers and other stuff)

But I would love to know: (via comment on an article or email to  nomoneyau@gmail.com) Is it interesting? Do you care? Should I stick to the money stuff?  or let me know any other feedback.  Happy to hear negative feedback or constructive critisicm.

Mark Bouris @ The Ivy 7:00-8:30am

Had a pretty interesting morning. Went to a breakfast this morning where Mark_Bouris , from The Apprentice Australia was speaking.

Did I learn lots of practical tips to share with you?

Well…  no.   A lot of what Mark spoke about was basically Economics 101… for the real world.

Since I like to get straight to the point  -below I’ve included how what Mark said it will affect YOU. Usually people would put this at the end (but read after this and you might learn a few things about Economics in the real world!)

How it affects YOU  –

Shopping-  Prices might go up (also called inflation). Businesses have to pay more to borrow money (or not be able to get money from banks) – they will try to charge you more.

Saving Money – You can get pretty good deposit rates at the moment (because banks want your money so they can lend to others).

Borrowing money  -You might have to pay a higher interest rate when you borrow money. And the banks will be more strict when they lend you (if a house you might need more of a deposit, etc). 

Interest Rates – Those who have loans – might find the interest rates go up. Either because the reserve banks raise them (because of inflation – see shopping) or because the banks can’t get money so increase the rates.

This is the end of how it affects YOU. However you may want to read on to gain knowledge about Economics and the real world – Scott

What Is Economics & Where the economy is Now

What is Economics?  I checked the wikipedia on Economics - but I seem to remember at uni defining Economics as how people respond to incentives – and make decisions about scarce resources (such as money, goods and services).

Economy in mid 90’s: Mark spoke about back in 1990’s when he launched Wizard Home Loans – money was everywhere. Large Institutions were providing money for Wizard to on-lend to consumers.

This created greater competition and the previous 4% margin the banks would get on loans (the difference between the Cash rate which banks lend each other and what they would charge to consumers).

Then pushed the bank/lender margin down to 1.5%.

Economy 2000’s: Now it is a different story.

2007 Subprime:A few years ago the Subprime crisis hit (see below for my subprime explanation)

So the money dried up.  A lot of our smaller lenders (like Aussie, RAMs, Wizard) were bought by the Big 4 banks. And there were a few other mergers as well (St George and Westpac being one)

2009-now - Credit Squeeze - So the situation now is that there are 4 big banks.   They now have the power (and are using it). In the 90’s/2000’s you could borrow 90% or 100% on a residential property.

Now the Big 4 Banks will have a stricter lending criteria on WHO and HOW MUCH they lend.  But they are still making profits on loans (about 3.5% on the margin now)

How it affects businesses Business lending is always stricter than borrowing for a home. Banks have turned off the taps to provide funding to business. Or they lend with such strict criteria (like covenants where the business has to show their books to the bank and if they breach conditions could have to pay the whole loan back).

Businesses need money not just for rennovations but also to keep the business afloat.  Profit does not equal Cashflow. If you have a company that builds Boats – you could make a lot of profit but if you can’t get the money to build a boat then you are stuffed.

Or with a small business – The clothing store has a whole store full of clothing (stock) that has come from suppliers. The suppliers probably want payment in 30 days. The stuff they haven’t sold might be borrowed from the bank as an Overdraft (bank account where you go negative and pay interest at cheaper rate than Credit card)

Subprime Crisis Explanation- In America they gave loans to everyone (if you could breathe you could get a loan). Similar to what we in Australia call No-doc (No-Documentation) or Low-doc loans – America gave Subprime loans.

Then suddenly people couldn’t make the loan repayments (some didn’t even have any way to make repayments in the first place and never should have got the money) .

This created a domino effect (which is Ecomonics).

1. People Couldn’t Pay

2.  House prises crashed in America (very different real estate market to Australia – you can just hand the keys back sometime and walk away regardless of the loan)

3. Banks Crashed because they had borrowed from other banks/institutions to get the money

4. Institutions collapsed – like Merril Lynch – one of the biggest stockbrokers.

(however note that Australia has a very different system to America and our house prices are not going to crash, our banks are among the strongest at the world at the moment, etc.)

Now you might own a home but rent it out – depending on whether you play by the rules will determine whether you have to pay tax (and how much).

Reasons to buy a home

1. Forced Savings

To buy a home you need a home loan or mortgage (unless you have saved the whole amount).

And when you are paying a mortgage it is forcing you to slowly pay off your house (the difference between the house and the loan on it is called ‘equity’ – that is the portion you own).

Reasons not to buy a home

1. Locked in to a mortgage

How a mortgage works

Sometimes a picture says a thousand words (so later I’ll let you down loan a loan schedule I have)

Say the bank lends you $250,000 for an apartment.

Interest -The bank charges interest (usually monthly) either at fixed rate = Fixed Loan or in line with the rate they can borrow = Variable Rate on the loan. 

Loan Repayment – The  bank will work out a repayment so that you pay back the loan (usually over 25 or 30 years).  If the interest rate doesn’t change - this repayment will stay the same for the period of the loan.

The loan repayment will pay off the interest charged – and the balance repays part of the loan (called principal). So this is called a ‘principal and interest’ loan (you can also get ‘interest only’ loans).

Mostly interest at the start - At the start of the loan you might only pay $100 a month in principal (given the interest charged every month). However over time as you start to pay the loan off – less interest is charged per month (and you pay more principal).

Got paid yesterday into my bank account. I got back from lunch and in 19 minutes I had allocated it all. I will have $9 in my bank account after my monthly direct debits (private health & church & $3bank fee) go through the account.

But the good news is – a lot of my pay has gone towards paying off my credit card debt (see my woeful tale of how I got sucked in here and how my credit cards spun out of control here ).

But (and here is where people will say I am crazy)…

I put $250 into savings this month – rather than paying off my credit card debt.

(note that if you can pay your credit card balance it might be best to do this – but if you are already paying interest on your credit card read on..)

Despite having a mortgage, car loan, credit card debts (of about$5,500) I put money into savings. And I will tell you my reasoning.I believe that…

1. The savings habit is more important than the net saved

Basically I believe that if you put every cent into your credit card every month (and like me watch what you spend so you pay it off quicker) – then by the time you finish paying it off – things will start appearing on your credit card. Either you will think of things to buy OR other things will pop up (you’ll need to go to the doctor/dentist, get your car serviced or registered, etc.)

And you won’t end up saving. But if you save a small amount (10% of your pay as mentioned in The one trick to Saving) you can get into a habit of saving. (Just as an aside – the one trick to saving was the very first article I posted because I believe it is the ONE MOST important tip I would offer to anybody)

2. You might not be much worse off

I wanted to see how much worse off I would be – so I created a spreadsheet just to see HOW much extra interest you would pay if you paid your credit card off VS. saved and put the balance into the credit card. (the spreadsheet I might give free to those who Sign up to the newsletter -do it now! or maybe put it so you can buy for cheap from the site)

So if I paid $1,750 a month off the credit card and then saved that amount vs. If I saved $250 a month and paid the balance ($1,500) off the credit card. Here are the variables:

The First example shows what happens if once the credit card is paid off I put the $1,750 into savings for 12 months. (this is a BEST BEST case scenario – your are never going to put the whole amount you were paying off your credit card into savings).

To make things more realistic the Second example is the same as the first except after paying the credit card off you will save Double what you initially saved (which is much more likely to happen in real life). So instead of saving $1,750 I would save $500 in this example (double $250).

What the numbers mean

Besides the obvious simplicity of the spreadsheet (see below paragraph) – to me this means that if you save little and save often you will be building up a money tree. Rather than a yo-yo effect of splurging, living cheap to pay credit card, then splurging, etc. where you might never get a chance to save.

Obviously you will be worst off in the first few months doing this – but after a year or two – you might realise that setting aside a portion of your income that is YOURS ONLY – makes you feel good and happier to pay off your credit card as much as possible.

You might also find that there is no difference in paying 10% and not (I mean that you will still have no money at the end of the month!).

Added bonus (my flatmate puts it much simpler than I do)

It takes you longer to get out of debt but you have the added bonus of having saved more (e.g. if it takes me 5 months to get out of credit card debt and I save $250/month then I have $1,250 saved vs. if it takes me 4 months if I don’t save then I start from $0 saved)  .

How numbers can be misleading (and why this spreadsheet might not be accurate)

The above spreadsheet does not take the following into account:

1.credit cards accrue credit daily (I assumed monthly), 2.interest income is taxed (I’ve assumed no tax paid), 3. interest free days for credit cards (assumes you have a balance where you are paying interest).

Send an email to nomoneyau@gmail.com and let me know what you think.

Also remember that THIS MIGHT NOT WORK FOR YOU. THIS IS ONLY ONE IDEA. (our disclaimer is at bottom of the About Nomoney page)

(open scene) (happy music playing trumpets, etc) so there I am on A Current Affair on Tuesday all dressed in suit and tie (Money by Pink Floyd playing “Money, get away. Get a good job with good pay and youre okay.” ) giving financial advice for generation Y (song fade and camera fade to black()!).

(narrative only.. black screen)but I’ve had a dirty secret for a while now…I have a credit card debt (silence) Two credit cards in fact! (Psycho -Shower screen screams). And since November I paid a large amount on my credit card to do a hair regrowth program (maybe I am a fool -see the full story in Christmas spending hangover)

Well the good news is my hair does seems fuller (bald Phil Collins – “I can see it coming in the hair tonight”)… but the bad news is a few branches have been chopped from my money tree (tuba low sad note).

The Damage – when it rains it pours

So the first problem was the few gorrilas on the hair regrowth program. Then of course car insurance, 2x strata repayments of $685 a quarter. Christmas… etc. etc. (worlds smallest violin starts playing)

Now I owe $4,640 on 1 card and $2,509 on another. Total $7,149 (large babble of voices what? why?)

Immediate Action Required – CUT UP THE CARD (sword slice!)

OK – so about mid December I realised that I was in the financial poo. I knew when I signed up for the hair program that it would be a few months before I could pay the credit card off (of course the salesman said it was cheaper to pay upfront and pay off your credit card in a few months than pay the monthly instalment option)   (Pantera guitar wailing in the foreground)

I’ve read financial books that tell you to cut up cards – or put them in the freezer so you need to wait for it to thaw before using it (laugh track used when jokes not funny)

What I did

1. I immediately have tried to pay everything possible on my 2nd credit card (an American Express or AMEX) (Stars and the stripes – Jimi Hendrix starts playing).

2. STOP THE SHOPING I cut (scissor sounds) going to the shops. Even though I have gift vouchers I know that a gift voucher means I’ll spend more in the shop so I am waiting until I go.

3. I have looked at payment due dates. In November I only paid $339 on my AMEX. I made sure I paid this before the due date so I kept my interest free days. Just to re-iterate this point – if you miss a credit card payment – ANY further purchases are immediately getting charged interest on them (rather than getting 30+ days interest free).

So I know that I will owe $2,409 on 4 February 2010(+I spent $100 on shopping a few days ago… there is only so long a man can live on tinned food, work biscuits and xmas leftovers).

I get paid on 15th so I’ll probably redirect my payment into the CBA credit card (which will reduce interest from 15 Jan rather than the AMEX which is only due on 4 Feb) (lightglobe turn on sound)

4. Hold off payments – there are some payments you might be able to hold off. I’ll wait until they send a 2nd reminder for the Water bill (p.s. I don’t really recommend this – could affect your credit rating when you go to borrow money but 1 missed bill should be OK – don’t make this a habit).

I have also told my parents – they were OK if I suspended payments on my loan to them (they lent me money when I bought my unit so I didn’t have to pay Lenders Mortgage insurance (definition at bottom))

Other Tricks

1. Reimbursement Trick -  I was on my work social club committee for 3 years (ending in Dec). Our Xmas drinks I put $1,500 on my Amex. Then I used the reimbursement payment onto my Commonwealth Credit Card.  So I have now recycled the debt to another interest free card.

2. Put dinner on your credit card – the poor cousin of the above. Everyone chucks in cash for dinner, then you take the lot and use your credit card. (I just came back from dinner with friends tonight and I did this!)VERY IMPORTANT – Pay the tip that your friends have given. If you do not do this that is stingy (you are already being a little unfair to the restaurant making them pay merchant charges for accepting your credit card – YOU MUST GIVE THEM THE TIP!).

Things that might not work as well.

1. The refund – In France I prebooked accomodation -instead of charging $30 Australian they charged $3,000! I checked my credit card statement and luckily they had sent me an email as well. But I don’t think this amount went against payments. (Also it is usually treated as refunded the same day).

2. Credit Card Stoozing Savings guide have an article about this (as I haven’t tried this myself I’ll take their word for it)

The last  crazy idea

My last idea is an unusual one (keep saving). Why would you keep saving to get 4% interest when you can pay off credit card interest at 20%?? (no music pause… suspense builds) Its the mental thing. If you feel like you are going forward and saving 10% (or repaying your mortgage as I will be doing) you feel like you are getting ahead (rather than working back to ZERO).

This means that you are more inclined to go with the PLAN to pay off your credit card.

Well I hope so anyway and I’ll let you know how it goes (a guy walking in a city…you recognise the riff.. Bittersweet Symphony by the Verve… its a bittersweet symphony thats life, try to make ends meet you’re a slave to money then you die…hi…….(fade to black… sound of a man snoring because it is way past his bedtime)