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Post-Christmas financial stress

13/01/2010

It’s incredibly easy to get caught up in the whirlwind of Christmas spending. Who doesn’t want to play Santa? Surely a new year’s resolution to cut back on spending will be sufficient to get your finances back on track?

Many Australians have been undeterred by the recent financial crisis. They’ve spent big. And right about now they are beginning to realise that they are in serious debt.

Recent Reserve Bank figures put Australia’s debt at $1.2 trillion. Household debt figures show that on average, every Australian adult owes $74,000, a combination of personal and mortgage debt.

The cycle of debt can be difficult to escape. Can’t pay off a credit card? Just get another one to pay it off, right?

It’s a worrying pattern.

Many consumers take advantage of retailers’ interest-free loans. These obviously seem attractive; take the goods home today and pay later. If you can pay within the interest-free period of the contract then there’s no problem. If not, the repayments escalate dramatically.

Rising home loan interest rates will put an even greater financial burden on many households.

It would seem that now would be a critical time to put good financial management strategies in place.

But how?

A good starting point is to work out where you stand financially. How much do you owe? What can you realistically afford to pay back?

If you can’t make a repayment by the due date, don’t be afraid to seek an extension. Creditors may be happy to negotiate. Many financial institutions have a hardship team who deal with these requests.

From a practical point-of-view, it’s a good idea to make a weekly budget and record everything you spend. Avoid spending on credit, particularly making cash advances which attract high interest rates. Pay back as much as you can, not just the minimum credit repayment.

Seeing a registered financial planner can be a good move, to help you establish a long-term plan. For example, consolidating all of your debt under one single personal loan or mortgage can mean a lower interest rate than your credit card rate.

There are also legal solutions you can explore, such as a debt agreement, personal insolvency, or bankruptcy as a final resort. These decisions should never be taken lightly, or without first seeking specialist advice.

You should also be aware that if there is a dispute about what you owe, the Consumer Trader and Tenancy Tribunal has wide powers to make orders in a fairly informal setting, and if there is enough at stake, you can apply to the court to set aside or vary an unjust contract under the Contracts Review Act.

Good financial management now is imperative. ASIC’s consumer website (www.fido.gov.au) has some great tips.

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