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Credit card costs become clearer


Zr9XR2sAAfYW2PkxFeralptC2m6d0KJCldk6k1hUbv4[1]There are approximately 20 million debit cards and 40 million credit cards or charge cards on issue in Australia. Combined, we use them to make about 10 million transactions a day. Interest charges, late fees and other penalties
cost Australians billions of dollars every year.

So it’s good news that changes to the National Consumer Credit Code will require card providers to be clearer about the cost of using credit cards.

The changes include:

  • Credit card companies will not be able to offer customers credit limit increases or new credit offers without prior permission.
  • Customers will have to specifically agree to their accounts being overdrawn. This will prevent card providers from charging automatic overdraw fees.
  • Card companies will need to inform customers about the implications of making only minimum repayments.

Credit card statements will become easier to read:

  • Charges associated with late payments or under-payment must be clearly spelled out.
  • Statements must carry a ‘Minimum Repayment Warning’ that shows how much interest will be paid and the time it will take to pay off the balance if only the minimum payment is made.
  • There must be an example of how much time and interest the customer will save if they increase their payment amount.

The changes are expected to come into effect later this year. Some estimates suggest that the reforms will save credit card users around $225 million annually.

Of course, the best way to avoid the costs and pitfalls of credit cards is to stop using them. With a proper budget in place you can start saving and eradicate your need for a credit card once and for all.

 

Remember, love is free!

Love is Free - Holding HandsValentine’s Day is big business. According to the Greeting Card Association, one billion Valentine’s Day cards are purchased worldwide every year, along with 100 million cut roses. Around 85 per cent of Valentine cards are purchased by women, and 73 per cent of flowers by men.

Still, it might pay to be sceptical if someone you know receives a bouquet today… A concerning statistic out of the United States claims that 15 per cent of people who receive flowers on Valentine’s Day have sent them to themselves!

Why not skip the cheesy heart-shaped chocolates and costly flowers this year? Spoil your valentine with a gift of service or special time together. Cook a special meal, do their chores for them, provide a relaxing massage, declare your love in a YouTube video, take a walk on the beach or share a picnic in a park.

There are so many free ways to show you care! Check out MyBudget’s Facebook page for ideas and links.

 

Dangers of going guarantor

 

Debt stressed woman holding head

I was recently looking at the case of a MyBudget client, a couple aged 65 and 72 years old, respectively. At a time in their life when they should be looking forward to a happy retirement, they are instead faced with selling their home to pay off a $150,000 bank loan which they guaranteed for their daughter. Their daughter’s business went bust and the parents are now responsible to pay back the loan.

 

What is a guarantor? A guarantor is a person who promises to pay for another person’s debt should that person be unable or unwilling to do so. In most cases, a guarantor mortgages their home or other real estate to secure the loan. The arrangement is legally binding.

 

When is a guarantor required? When an applicant fails to meet lending criteria—due perhaps to unreliable income, poor credit history or lack of assets to secure the loan—the bank may ask the applicant to provide a guarantor.

 

When should you go guarantor for someone? Nine times out of ten, never. If the bank believes that the applicant represents too great a risk, they probably are.

 

Consider the risks as you would with any financial speculation: Why does the applicant need your help? What assets do they have of their own? What is their capacity to repay the debt? How will the loan money be used?

 

Contemplate the worst case scenario: What will happen if the borrower stops paying? Could you afford to pay the loan on your own? What would you risk losing? Your home? Your superannuation?

 

Before you sign anything, take a long look at the credit contract, especially the length of time the contract will run, the total amount that must be repaid and the terms of guarantee. It may well be worth the time and cost to get professional advice from a lawyer or accountant.

 

Most importantly, remember this… People rarely get into financial difficulty on purpose. Most financial hardship occurs because of unexpected life changes—things like job loss, business failure, divorce, illness, pregnancy. Changes like these can have devastating effects on a person’s finances, especially when debt is involved.

 

The couple in my example had great faith in their daughter and their daughter had every intention to repay the loan on her own, but life has gazumped them.

 

Sadly, the impact is not only financial, but emotional. The deepest cost of a loan guarantee gone wrong is often that of a damaged relationship.

 

Affordable children's parties

 

 

Happy children

Keeping up with the Joneses — not to mention the Beckhams — is one of the fastest ways to find your finances going backwards. It used to be enough to aspire to the haircuts and clothes of the rich and famous, but it seems that lavish kids’ birthday parties have become the latest status symbol.

Here are some tips to keep the cost of your kids’ parties under control — and in perspective.

 

Keep it simple

Kids don’t care if the cake comes from an exclusive bakery or if the serviettes were hand-dyed by French artisans. Focus on fun activities, games and play time which is what your kids will appreciate and remember.

 One year, we had a sleep-over party for my daughter Maddy. We made hotdogs for dinner and went on a night walk to the kids’ local primary school with torches. We came home for snacks and watched a movie together. Another year we went to a local park for a picnic party. I made snacks and the birthday cake. The kids ran around and made their own fun in the playground. It was simple, but the kids loved it.

 Create a party budget

One of the greatest gifts you can bestow on a child is teaching them the difference between needs and wants. It’s important, therefore, to have the kind of party your family you can afford. Set a budget and stick to it.

I’ve often used birthday party venues that have a set price for parties — bowling centres, indoor play centres, fast food restaurants… I’ve done them all! These places make it easy to manage your party costs within a budget because you know exactly how much the party is going to cost in advance.

I think it’s also ok to explain to a child that you can’t afford a party this year. You can still make their birthday special with cheap treats at home and fun family activities.

Other ideas:

  •  Keep it small. For one of his birthdays, my son Seth invited one friend to the movies, dinner and a sleep-over.
  • Ask family members and close friends to bring a plate of food.
  • Set a start time and end time for the party — a few hours is plenty of time for little children.
  • Turn decorating into a craft activity — my kids have become skilled at making decorations from boxes, paper, recycling materials and craft paint we have around the house.
  • Shop in advance for discounted drinks and party supplies. Discount shops like Cunningham’s Warehouse and the Reject Shop are good places to look for party supplies and cheap prizes for games.
  • Make your own birthday cake and snacks. There are lots of websites that show you how to make themed cakes.
 

Home loan rate cuts: how to budget the savings

 

Cutting Debt Percentage Sign

In December, the big four banks passed along the Reserve Bank’s interest rate cuts to their customers. For the average mortgage holder, the saving represents around $50 a month.

People often ask me what they should do with the extra money and I always answer that it comes down to their particular priorities and circumstances.

 

Do you have any high-interest debt?

This is great opportunity to make a dent in any outstanding balances on your high-interest credit cards, charge cards or other loans. Consider this: Paying $100 a month, it will take more than four years to pay off a $3,500 credit card balance. Apply an extra $50 to your monthly payment and you’ll have the same balance down to zero in two-and-a-half years.

 

Do you have sufficient emergency funds?

Overuse of credit is often linked to a lack of savings. Without an emergency fund to fall back on, even small life changes and unexpected bills can lead to financial stress. If this sounds familiar, use your mortgage surplus to start building up your emergency savings. Have the money disbursed directly from your pay into a separate savings account or a redraw or interest offset facility attached to your mortgage (see below.)

 

Want to pay off your mortgage faster?

If you keep paying the extra money towards your mortgage, you’ll very likely take years and tens of thousands of dollars off your mortgage.

Many mortgages include a redraw facility that allows the mortgage holder to draw against surplus payments when a need arises. This is a great way to build up emergency funds while paying off your mortgage more quickly. A mortgage offset facility is similar—the balance of your offset account is subtracted from your mortgage balance, hence reducing the amount of mortgage interest you pay.

 

Saving for something special?

If you’re saving for something special, your offset/redraw facility is the place to do it. While you save for your holiday, car, new sofa, home renovations or whatever else, you can reduce the interest costs on your mortgage.

If your mortgage doesn’t include a free redraw/interest offset facility (in which case, it might be time to shop around for one that does), open a special savings account to save for your long-term goals.

 

Interest cuts are a good reason to review your budget

MyBudget clients can speak with our customer service team to review their budget and goals at any time to determine the best way to utilise surpluses. Your goals and priorities are important to us—we love helping you to achieve them.

 

Review your mortgage at the same time

If your bank hasn’t passed on the Reserve Bank cut, it’s definitely time to shop around. While rates are low, this could also be the perfect opportunity to consider fixing your mortgage for a period of time. Talk to your bank or mortgage adviser, or give MyBudget a call if we can refer you to one of our partner companies for a mortgage health check.

Dentist bill without the bite

Smiling Mouth Woman

What are your options if you need dental treatment but don’t have insurance and can’t afford to pay from your own pocket? There may be a way to save money and preserve your smile.

Dentistry is one area of the public health system that is deeply in crisis. Public dental treatment only covers minors who are attending school, and adult Pension and Health Care Card holders. In even emergency situations, public dental treatment is only for eligible individuals.

According to the Australian Society of Orthodontists, 650,000 people are currently waitlisted for public dental treatment in Australia. Only 11 percent of the waiting list receives treatment each year. Many have severe tooth decay and oral disease.

MoneyTalks reader, Leonie from Brisbane, wrote to me recently with this suggestion:

I have recently been to the School of Dentistry at the University of Queensland to have some work done on my teeth. I have been putting it off as I cannot afford to go to a regular dentist. I also do not have a health care card so I was stuck between a rock and a hard place.

A friend told me about the dental school. I was in the chair just one week after booking, looked after by a wonderful fourth year student (with a supervisor attending.) The initial two-hour appointment and x-rays cost $62, which is less than half of a fully qualified dentist.

No complaints. Money saved.

In the interests of saving money–and keeping a smile on your face–it may be worth finding out if there’s a dental school near you which opens its teaching clinics to members of the public. The Australian Dental Association provides a list of dental schools in each state.

Fiscal-fantastic resolutions for 2012

 

Save More Money 2012 Picture Graph

What a year 2011 has been. The debt bubble has truly burst and the effects of poor money management are being felt all the way to the top. Debt is undoing entire nations and putting increasing financial pressure on people whose incomes are already stretched.

That means there’s no better time than 2012 to take control of your money. Here are 10 fiscal New Year’s resolutions to get you started:

1. Know your financial position–put a budget together

Budgeting is the only way to develop a true understanding of your financial position. For your budget to work, it should be a year-long plan that takes weekly, monthly, quarterly and annual expenses into account, as well as safety net savings and realistic amounts set aside for special events such as Christmas and birthdays. Budgeting is like a road map—it helps you plot the fastest path to your financial goals.

2. Pay off debt

Start by prioritizing your debts and bills. Your rent or mortgage should be your highest priority, followed by those debts with the highest interest rates. There’s also merit in first paying down those debts which make you feel the worst—perhaps a loan from a friend or family member that weighs heavily on your mind.

3. Set a goal and start saving

Set yourself a savings goal and enjoy watching your balance grow throughout 2012. Your goal should be realistic—even small amounts will add up over time. The best way to start saving is to ask your employer to disburse a set amount of each pay packet into a separate savings account which has no ATM access.

4. Live within your means

If overspending was an issue for you in 2011, take some time to think about why. Has it been due to unmanageable debt? It might be time to talk to your creditors about a more affordable payment plan. Or it might be time to cut back on unaffordable lifestyle expenses. Big savings can come from paying less for rent, trading down to a cheaper car, cooking at home, cutting back on clothes and gadget shopping, and doing less partying!

5. Embrace simple living

How much money in 2011 did you spend on “stuff?” That foot spa you never use. The George Foreman Grill that’s still in the box. A shirt that was too small when you bought it. Now is the time to rid yourself of clutter and embrace simple living. Have a garage sale, sell it on eBay, give it away or donate it. Let 2012 be a year of sufficiency.

6. Evaluate your insurance premiums

Insurance premiums can vary widely. The cost to cover the same driver with comprehensive auto insurance can differ by up to $1,000 a year between different companies. The same principle applies to health insurance and home and contents insurance. Always collect at least three quotes and make sure you’re comparing apples with apples. In 2012, make a habit of shopping for the best offer.

7. Cut back on small expenses

We’re all guilty of little fiscal vices that add up over the year. Cut your grocery bill by $10 a fortnight by saying no to chips, chocolate and softdrink and you’ll save $260 a year. ($260 goes a long way towards Christmas groceries.) Stop buying a daily latte and you’ll save at least $1,000. Make your lunch instead of buying it and you’ll have an extra $1,500 in your pocket. Put the money you would have spent on these things in a jar or piggy bank. What would you do with an extra $2,500 in 2012?

8. Use cash not credit

Australia’s combined credit card debt reached a record high this year and we’re now paying $7 billion a year in interest charges alone. Nervous about not carrying your credit card? Try using cash for just one month and see how much easier it is to stick to your budget. Cash is even better than your debit card because it’s a constant visual reminder of your budget every time you open your purse or wallet.

9. Save up for big purchases

Say no to the “buy now, pay later” culture and take enjoyment from saving for the things you want. Some banks allow you to organise your savings into sub-accounts for special purposes. You’ll find that watching you money grow provides just as much excitement and fulfillment as the idea of spending it!

10. Take action now

It’s natural to feel embarrassed or stressed if you suddenly find yourself with money troubles, and it’s tempting to hope that your problems will take care of themselves. Unfortunately, they never do and the longer you let things go, the less options will be available to you. Talk to a friend or family member who’s good with money, a financial counselor or personal budgeting expert. Get back on your feet in 2012, and stay on them for good.

This article was featured in The Advertiser ‘My Week’ lift-out. Catch more of Tammy’s money-wise tips in The Advertiser every Monday and in other News Limited publications.

2012 is your year to kick goals… Talk to our new Review & Planning Officer!

 

Goal Setting Action Plan

What will you do with the extra funds as your debts are paid off?

Save for a house? A holiday? Pay down other loans? Top up your super? Enrol in a training course?

This important question is the reason we’ve created a new staff position at MyBudget: Review & Planning Officer. The Review & Planning Officer’s role is to monitor final payments as clients pay off their debts and help them to reassess their financial goals for the future.

Why is financial goal setting important?

Goal setting is a vital key to success in budgeting, as much as it is to life in general. You may have heard it said that the shortest path between two objects is a straight line. Yet when it comes to managing money, many people take the long way and only a few reach their preferred destination.

Part of the problem is that most people don’t have a clear destination in mind. Their financial goals are positive, but vague: To get out of debt, to save money, to cut back on expenses, to live comfortably.

Specific financial goals are more effective

When goals are specific, however, it’s much easier to create a plan. Your budget becomes a roadmap that plots exactly how you intend to get to your destination.

A specific goal outlines your purpose, details and timeframe—eg. “I will save $250 a month from January to December 2012 so that by the end of the year I will have $3,000 in savings to pay for my February 2013 holiday in Fiji.”

Goals provide long-term vision and short-term motivation. Sacrifices become bearable—even enjoyable!—when we have a goal to look forward to.

What are your financial goals for 2012?

Try setting small goals to start with. It may be as simple as saving to go to a concert. If the concert is in three months’ time and the ticket will cost $60, you’ll need to save $20 a month. Perhaps you’ll need to cut back on a few expenses, but obstacles are much easier to overcome when there’s a reward at the end.

It’s also important that your goals are realistic and that you have control over the outcome. Setting a goal to win the lottery, for example, is unfortunately not very realistic and not within your control. But saving for a holiday—or whatever else you have in mind—might be.

It’s your life, your money and your goals!

Contact the Review & Planning Officer

When you’re ready to reassess your financial goals, contact Customer Service and ask to speak with the Review & Planning Officer. We’re always here to help!

 

Reflect on your achievements & priorities

Tammy May Says 2012 is About Goal SettingAs 2011 draws to a close, I want to congratulate each and every MyBudget client for swimming against the debt current. The fallout from the world debt crisis will continue next year, but you are already taking control of your finances.

Reflect on your achievements over the past 12 months. Even if you’ve only just joined MyBudget, taking that first step is a huge accomplishment. Give yourself the praise you deserve.

As we approach 2012, think of your budget as a roadmap and ask yourself where you would like it to take you. Perhaps debt reduction is still your priority. But as you reduce your debt you may find that your financial priorities change.

This is the time to think about those priorities and to set your goals for the New Year. Where do you want your money to take you in 2012 and beyond? Whether they are big or small, take some time over the coming days to write down your financial goals.

If you would like help with goal setting, contact our new Review & Planning Officer. Review & Planning is just one extra service we were proud to introduce in 2011 and we promise to continue extending our support services throughout 2012.

From my family to yours, I wish you prosperity, happiness and riches beyond money for the coming year!

MyBudget embraces the season for giving

MyBudget Make a Difference Program Staff Photo

Ask MyBudget staff what they love most about their jobs, and you’ll repeatedly hear the phrase “helping people.” Helping people put their lives back together is both a responsibility and an honour. For that reason, we mindfully select people to work at MyBudget who put the company’s core values into practice every day.

Christmas is an especially important period for us. We understand that it puts people and their finances under pressure. It’s a time of year when we can really make a difference…

Make A Difference program

For the second year in a row, MyBudget’s Make A Difference program has distributed money to worthy clients in time for Christmas. $6,000 has been distributed in varying amounts between 13 MyBudget clients.

Their heart-wrenching stories tell of hardship and adversity, and situations which were beyond their control, including flood, illness and plain bad luck.

Tammy May read each entry personally and commented, “Make A Difference money won’t necessarily repair these people’s lives, but it will help towards a better Christmas.”

MyBudget Social Club focuses on clients in need

The MyBudget Social Club usually celebrates Christmas by exchanging Kris Kringle gifts with each other, but this year they decided to embrace the spirit of giving differently.

Social club members pooled their money to prepare Christmas gifts for 11 lucky clients. The clients were selected from remaining entries in the Make A Difference program.

Chantelle selected a client couple who, like her, are animal lovers. Unable to have children of their own, these clients are mum and dad to four “fur babies.” One of their babies has suffered a mystery illness throughout 2011 which has resulted in expensive vet costs and put them behind in their bills. Another of the babies ruined the family’s couch.

Helping Clients in Debt at Christmas

Chantelle used social club contributions and her own funds to make these clients a pet-friendly Christmas hamper, and she located a free couch on GumTree.com.au.

Tammy May commented, “I’m very proud of MyBudget staff for being such genuine and caring people. Our core values aren’t empty concepts. They’re actions we practice every day in big and small ways to make our clients’ lives better.”

 

By Kylie Hughes, guest writer