What is your New Year’s Resolution? Is it to clear your debts and get better with your finances? If so, here are some practical, positive steps you can take to get your finances off to a great start in 2013 and improve how you deal with money forever. Reduce your chances of bad credit history.
1. Get your head around it.
It’s important to get your head around your new money plan, and that might require some inspiration. Grab a copy of a book by a well-recommended finance author and adopt some new methods to make money and credit work for you, not against you.
Here are 5 great finance books to get you started, but of course there are many, many more:
1. Rich Dad, Poor Dad by Robert Kiyosaki. He also published a book on debt in 2012, Rich Dad’s Guide to Becoming Rich Without Cutting Up Your Credit Cards: Turn “Bad Debt” into “Good Debt”
2. The Richest Man in Babylon by George S. Clason
3. Think & Grow Rich by Napoleon Hill
4. Making Money by Paul Clitheroe
5. Affluenza: When Too Much is Never Enough By Clive Hamilton and Richard Denniss
2. Dot your i’s and cross your t’s.
Don’t let your finances get away from you. Spend some time looking at your paperwork and make sure everything is in order. We mean everything. This is no mean feat. In fact, this is pretty hard. Do you have outstanding Super? Have you done your tax? Make a resolution to not bury your head in the sand about bills. Pay them straight away if you can or diarise their repayment. Read all of your bank and credit card statements when they come in.
If you are not particularly organised – you may even like to resort to the ‘shoebox method’ – which is basically keeping every receipt for the week or month in a shoebox, and transferring it after that time onto a spread-sheet which allows you to track your spending and gives more focus to where you might be blowing out your budget.
Don’t let disorganisation lead you into debt and threaten your credit rating.
3. Understand your debt.
Get a good handle on how much you owe. This will be much easier if you have followed step 2 well.
Take a deep breath and tally up all of your debts. Then pick yourself off the floor and make a plan to get on top of your repayments before your credit rating suffers.
4. Work out a repayment plan for your debts.
Most people with significant debt generally have it stacked up on a credit card – or cards. Unfortunately most are at high interest rates which make it often impossible to get on top of. Many experts recommend switching all debt to one card with a lower interest rate, or even swapping to a personal loan.
The best advice we can give on any loan, including credit cards is to repay above the minimum amount set by the bank – which will allow you to actually make progress on clearing the debt because you will be saving interest.
In Finance expert David Koch’s blog post Grow Your Savings he says by far the best way to invest a small amount is to pay off debt:
“If the $100 or $1000 is paid off the mortgage it is providing a return of 6 per cent tax-free because that’s how much you’re saving in interest.
There aren’t many investments today giving a tax free return that high.
Even better, use the money to pay down an outstanding credit card balance and enjoy a tax-free benefit of 10-20 per cent depending on the card,” Kochie says.
If you don’t have the luxury of having extra money left over after pay day, and if in fact you are really going to struggle to make repayments on some of your debts, then the best thing you can do is contact your Creditor immediately. Don’t wait until you are behind in your repayments, as you run the risk of having a late payment noted against your name on your credit file, and if in arrears past 60 days, you will be listed with a default on your credit file.
If you use the words ‘Financial Hardship Variation’ your Creditor will consult with you to work out a new arrangement under these Financial Hardship provisions. They are not obligated to assist you in reducing or delaying your repayments, but they are required to make an official response to your request, and if you present them with a good case as to why and how you intend to repay your debt, as little as it may be right now, you might have a good chance.
5. Clear your credit file of errors.
Many people find they do all the hard work of making a significant dent in their debts and start saving towards a home or car loan, only to find their past comes back to haunt them.
You may apply for a loan, only to be refused due to credit file defaults which show up on your credit report. Basically any creditor is able to place a default on your credit file if a repayment is later than 60 days. There may be times when this has occurred and you are unaware of it.
Whatever the situation, credit file defaults need to be treated very seriously. They are most times an instant negative for any bank who is thinking of lending you money.
And the thing is…they hang around for 5 years. What are your financial goals 5 years from now????
It is good financial practice to get a copy of your credit report each year, and make sure everything is as it should be. This report is FREE every year from the credit reporting agencies. You may have listings with one or more of the credit reporting agencies. There is a potential for errors to be present on your credit report.
Credit reporting mistakes do happen, but the watchdog is YOU!
If a default has been listed ‘unlawfully’ you have the right to request its removal from or amendment of your credit file.
Many people get the run around from creditors when they try to do this – or they get bogged down in all the legalities.
Unfortunately the potential is there to ruin your chances of getting the default removed if it is not handled the right way. We suggest you get a credit repairer on the case, they know the legislation and can work within it to force creditors to honour their obligations under Australian law and negotiate the removal of any errors from your credit report.
Good luck in making this year the year you make money – and credit – work for you.
Visit MyCRA’s main site www.mycra.com.au for more information or phone tollfree 1300 667 218.
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