The related prosperity primer is: "Save, don't cave". But there are five things that, no matter what, you should never put on your credit card.
The vow is not "until debt do us part", but well it could be if you card a wedding. With the average spend on that one day now a crazy $65,482 (according to Bride To Be magazine), brides and grooms can spend years paying it off – and thousands in excess interest.
Let's say you take out the average five-year personal loan for the big bash; you'll add $25,815 to your ultimate price tag (at the average 13.94 per cent interest rate over that five years). Ouch. But whack a wedding on the average credit card, as a recent MoneySmart survey found 18 per cent of people do, and with the same $1,522 monthly repayment you'd up the impost an extra $19,489 – and push the total cost above $110,000 (at the average 19 per cent interest rate, this time over six years).
It's all pretty scary when you learn 35 per cent of couples blow their budget. Sure, a wedding has sentimental value but it has no residual financial worth – in other words, there's nothing you can sell to recoup the cost (unless you're Kim K, and there's probably a limit to how many times publications will pay for pics of her happy day(s)!). And swiping for it could put you far behind for a house purchase.
I am all for investing in yourself, but not if via the HECS-HELP lending scheme the government will do it for you. OK, you qualify for a 10 per cent discount if you pay up front (for now), but access the cash from a card and remember you'll pay an average 19 per cent interest.
Meanwhile, HECS-HELP is, in effect, interest free – your debt grows only at the rate of inflation.
Say you have a $10,000 tuition bill and use a card to cut it to $9,000, then pay the minimum each month – because you're a broke uni student. You'd fork out double that amount, almost $18,000, by the time you'd cleared your card nine years later.
Alternatively, your $10,000 HECS-HELP debt would have grown to only about $13,000. There's an argument to access the government loan scheme even if you have the cash up front, and to invest the money elsewhere – if you're confident the return would far outstrip inflation and compensate for the loss of the discount.
It's foolish indeed to use your credit card to pay your home loan. This is doubling the debt damage. And unless it's a short-term cashflow problem, it is a big danger sign.
You need to sit down and have a realistic look at your money in and out – are you overcommitted (perhaps because your circumstances have changed)? It's counter-intuitive, but if you are seriously struggling to meet your mortgage repayment, you need to talk to your lender. Explain you are experiencing financial hardship, as defined in the National Consumer Credit Code.
They may grant you a short-term repayment pause or issue you with a revised repayment schedule – after all, they'd like to ultimately get their money back. Just be aware the longer you take to get out of a mortgage, the more interest your lender will get out of you.
It is also worth seeking free financial counselling to address what might be a bigger solvency problem; see the wonderful resource at MoneySmart or call 1800 007 007.
Your tax bill
The tax office always wants its slice of your spoils, and it speaks of poor planning if you no longer have it – you've spent the government's money!
Meeting your liabilities is your first priority on the way to financial security. It might be possible to arrange to delay paying a tax bill, particularly if there's "hardship", but you'll usually cop more than 9 per cent interest on the outstanding amount. And yes, even though the cheapest credit card charges only 7.99 per cent interest (Quay Credit Union), I still say don't go there: the ATO will give you a repayment plan you'll have to stick to.
Never succumb to a plastic trip-tastic because afterwards you'll have nothing but selfies to show for it. Holidays are a credit binge with a big financial hangover; you don't need me to run the numbers. Suffice to say a vacation bought with cash costs what it costs. Not a cent more.
Think of your debt decisions this way: the more money you have to dedicate to repaying previous splurges, the less there is left for new ones. It is unsustainable and unsafe.
Remember, save don't cave. You may even enjoy more the goals and rewards you single-mindedly shoot for.
This article was originally published by the Sydney Morning Herald on 30 September 2015.
This article represents the views of the author only and does not necessarily reflect the views of AMP.
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