Everyone knows that person right now – the one who is struggling with their finances. Maybe they have told you. Or more likely, you can see it on their face or feel it in their interactions.
Perhaps, it’s even you.
Well, there are five little-known money repair moves that can give you breathing space – and then simpler-than-you-think strategies to get clear and comfortable.
Repair move 1: Park your credit card debt. At a typical 18 per cent interest rate or more, even if you never spend another cent, this liability could be spiralling out of control.
But know that there are other credit cards to which you can transfer your existing card balance and pay no interest on it. These are for new customers only, and the idea is to lure your business across. However, used cleverly, you can think of them as get-out-of-debt-jail-free cards.
You can currently get up to 25 months at 0 per cent on a transferred credit card balance, which gives you a 25-month window of opportunity to clear it – divide your balance by the number of months and see if you can repay that amount.
These are simple solutions that will make a huge difference to your future.
If you can’t manage that, though, such a card will at least cap your debt at its current level.
The traps to these – of course there is some nasty fine print – are that any new spending will be charged at an astronomical interest rate, and you’ll also pay through the nose if you still have debt when the 0 per cent period ends.
So, never use these cards for spending and close them – even if you need to transfer your debt to a second no-interest product – when the introductory period expires. Chop up the old card, too, if you can’t trust yourself not to rack up more debt. But what if you face a sudden, unexpected expense?
Repair move 2: Try the no-interest loan scheme (NILS). This is one of those seems-too-good-to-be true things, but it’s legit.
The good people at not-for-profit Good Shepherd Microfinance offer no-interest (and no-fee) loans of up to $2000 for unexpected expenses such as a busted washing machine, kaput car, education expense like a laptop or even a big dental bill.
Note this is far better than a white goods rental contract that can end up costing you multiples of the appliance’s original value.
The money is paid straight to the supplier – not in cash. To qualify, you need to have a healthcare or pension card, or earn less than $70,000 before tax as a single or $100,000 if you have a partner or dependents. You can also borrow up to $3000 for a rental bond or for recovery from a natural disaster.
But as the site says: be aware of scams and imitators. The real address is goodshep.org.au and is a far cry from all the predatory small contract or payday loans online, more accurately thought of as loan sharks. These will often say “no interest” but with fees, can have an enormous effective interest rate.
Repair move 3: Access financial hardship. If it’s everyday bills applying far too much pressure, realise that all utility and credit providers must have dedicated “financial hardship” departments. They also must extend you a degree of help if you need it.
So, as foolish as it might sound, it’s smart to stick up your hand and say you are struggling … before you miss a bill. That’s the way to protect your all-important credit score, too.
Having said that, it’s not widely known that you have leeway days to pay after each bill is due, in terms of your credit score.
The grace period is up to 14 days with any credit product and up to 60 days with any other product (say your electricity). But you will, naturally, make your provider cranky – possibly enough to charge you a financial penalty.
The other thing to note is that post-COVID regulatory updates mean that entering into a financial hardship arrangement with a provider will no longer impact your credit score. All that happens is that the words “financial hardship” will appear on your credit report, and only for one year after that arrangement ends.
Repair move 4: Use the National Debt Helpline. Go to ndh.org.au or call 1800 007 007 to access a tremendous network of wonderful, free financial counsellors around the country. There is very likely at least one service in your area.
They will go through your finances and find where they can be optimised and streamlined. They can also advocate for you with your providers for financial hardship, help arrange one of those no-interest loans and even liaise with Services Australia if needed.
Repair move 5: Build an emergency fund. None of the above happens if you have a buffer – an emergency cash stash that you can access if stuff goes wrong, which it probably will at some point. An emergency fund can rescue you without the need for credit and without risking debt spiral.
Try to build this slowly and steadily over time, ultimately aiming for at least three months’ salary (and an offset account is a smart place to house it if you have a mortgage). You can think of the above repair plays as financial freedom moves – simple solutions that will make a huge difference to your future.
Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at nicolessmartmoney.com. Follow her on Facebook, X and Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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