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I have $18K in credit card debt.

What are my options in tackling this? Every month I am left with no extra money to pay anything more than minimum payment required (car, rent, another personal loan, minimum on food and petrol).

At the moment my minimum payment is $466 and of that $237 is for interest.

I have been told I can move to another card that has no interest for 14 months, but does that translate to being able to pay off the debt sooner or there are some other fees and I'll be back where I started, having paid some extra fees?

My personal loan and credit card is with Commonwealth Bank.

What are my options in getting out of debt?

Would moving to another bank help?

Are debt consolidation companies legit? What can they do that I can't?

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4 Answers 4

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To confirm: you say you have credit card debt of $18,000 with min. repayment of $466.06, plus on top of this you are also paying off a car loan and another personal loan.

From my calculations if your monthly interest on your credit card is $237, the interest on your credit card should be about 15.8% p.a. Is this correct?

Balance Transfer

If you did a balance transfer of your $18,000 to a new credit card with 0% for 14 months and keep your repayments the same ($466) you would have saved yourself a bit over $3020 in interest over those 14 months. Your credit card balance after 14 months would be about $11,471 (instead of $14,476 with your current situation). If your interest after the 14 months went back to 15.8% you would be able to pay the remaining $11,471 in 2.5 more years (keeping repayments at $466), saving 10 months off your repayments and a total of $4,781 in interest over 3 years and 8 months.

The main emphasis here is that you are able to keep your repayments at least the same so you are able to pay off the debt quicker, and that your interest rate on the new credit card after the 14 months interest free is not more than your current interest rate of 15.8%.

Things you should be careful about if you take this path:

  • make sure the new credit card has no hidden fees (read the PDS carefully).
  • make sure the new credit card interest rate is not more than your current interest rate after the interest free period.
  • make sure you keep paying at least your current minimum repayments you are paying now and if you can reduce other expenses then increase these payments even more to save even more interest and save even more time paying off the debt.
  • Stop any new spending on the credit card.

Debt Consolidation

In regards to a Debt Consolidation for your personal loan and credit card (and possibly your car loan) into a single lower interest rate loan can be a good idea, but there are some pitfalls you should consider. Manly, if you are taking out a loan with a lower interest rate but a longer term to pay it off, you may end up paying less in monthly repayments but will end up paying more interest in the long run.

If you do take this course of action try to keep your term to no longer than your current debt's terms, and try to keep your repayments as high as possible to pay the debt off as soon as possible and reduce any interest you have to pay.

As you already have you credit card and personal loan with CBA talk to them to see what kind of deal they can give you.

Again be wary of the fine print and read the PDS of any products you are thinking of getting. Refer to ASIC - Money Smart website for more valuable information you should consider before taking out any debt consolidation.

Other Action You Can Take

If you are finding that the repayments are really getting out of hand and no one will help you with any debt consolidation or reducing your interest rates on your debts, as a last resort you can apply for a Part 9 debt agreement. But be very careful as this is an alternative to bankruptcy, and like bankruptcy a debt agreement will appear on your credit file for seven years and your name will be listed on the National Personal Insolvency Index forever.

Further Assistance and Help

If you have trouble reading any PDS, or want further information or help regarding any issues I have raised or any other part of your financial situation you can contact Centrelink's Financial Information Service. They provide a free and confidential service that provides education and information on financial and lifestyle issues to all Australians.

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My solution would be almost the same but I would recommend you do this for 28 months instead of 14 and see an even bigger savings. –  NickNo Mar 16 at 0:05
    
@NickNo - read the question. The OP can get a Credit card with 14 months interest free. The answer is based on this. I doubt if anyone would offer 28 months interest free period. And it would get quite hard to find deal after deal offering such long periods of interest free. –  Victor Mar 16 at 6:06
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Victor addressed the card issue with an excellent answer, I'd like to take a stab at the budget and income side.

Your question clearly stated "I am left with no extra money," each month. Whenever I read such an assertion, I ask the person, "but surely, X% of people in your country get by on a salary that's 95% of yours." In other words, there's the juggling of the debt itself, which as Victor's math shows, is one piece of the puzzle. The next piece is to sift through your budget and find $100/mo you spend that could be better spent reducing your debt. Turn down the temperature in the winter, up in the summer, etc. Take lunch to work. No Lattes. Really look at the budget and do something.

On the income side. There are countless ways to earn a bit of extra money. I knew a blogger who started a site called "Deliver away Debt." He told a story of delivering pizza every Friday and Saturday night. The guy had a great day job, in high tech, but it didn't lend itself to overtime, and he had the time available those two evenings to make money to kill off the debt he and his wife had. Our minimum wage is currently just over $7, but I happened to see a sign in a pizza shop window offering this exact position. $10/hr plus gas money. They wanted about 8 hours a weekend and said in general, tips pushed the rate to well over $15/hr. (They assumed I was asking for the job, and I said I was asking for a friend). This is just one idea.

Next, and last. I knew a gal with a three bedroom small house. Tight budget. I suggested she find a roommate. She got so many responses, she took in two people, and the rents paid her mortgage bill in full. Out of debt in just over a year, instead of 4+. And in her case, no extra hours at all.

There are sites with literally 100's of ideas. It takes one to match your time, interest, and skill. When you are at $0 extra, even finding $250/mo will change your life.

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+1 - just to add to this - the adult (over 20 years) minimum wage in Australia as of 1st July 2013 is $16.37 per hour. –  Victor Mar 15 at 12:12
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@victor, yes, I've used Australia as an example of a country actually doing something to reduce poverty. In the US, we have the fine rhetoric "when you increase the cost of something you get less of it, so raising the minimum wage will increase unemployment." This is usually said by the rich white guy who never worked a real job in his life. You have a good country, that no one seems to want to bomb, I like that, too. –  JoeTaxpayer Mar 15 at 12:23
    
@JoeTaxpayer The higher the minimum wage the fewer people are working. Think of it this way, if a 'rich white guy who never worked a real job in his life' suddenly had a drop in income, he could either sell his slave ship collection or more likely let go of everyone but his favorite workers and outsource to Asia. So basically artificially set wages cause minorities to lose jobs at a higher rate with the end result being even greater poverty but more Progressive Liberal voters. –  NickNo Mar 16 at 0:15
    
@NickNo - I stand corrected. With a minimum wage more than 2X the US, Australia pays for it with a far higher unemployment rate. Thanks for setting me straight. –  JoeTaxpayer Mar 16 at 0:19
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@Victor - data.bls.gov/timeseries/LNS14000000 we are at 6.7%. Instead of offering data, Nick repeated the same rhetoric I suggested I keep seeing in the debates. The question itself is not about about unemployment, and my long digression, with all comments should probably be cleaned up. Suffice it to say, OP can find small extra work to kill his debt. –  JoeTaxpayer Mar 16 at 10:16
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Short-term, getting a balance transfer will help. It'll reduce the interest you pay.

You can also reduce the interest you pay on your cars if you are able to consolidate your debt into a personal loan. To your question about debt consolidation companies, as far as I know, that's all they do.

However, long-term, there's only two ways to stay on top of debt: increase your income, or reduce your spending.

Basically, if you can't or won't get a raise or a job that pays more (or a second job), you need to cut back on your spending.

You might need to do something radical, like move somewhere with cheaper rent (as long as increased travel costs doesn't offset the saving). But you'll be much better off in the long run if you step back and take a look at your situation now, and make adjustments accordingly.

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JoeTaxpayer mentioned a budget. Staying on top of your spending will be the result of getting out from under this debt. You may have Excel on your PC now, if not Open Office is free which has a program that handles finance applications. There is budgeting software for free out there. Youneedabudget.com is a lot better but cost a little. It keeps me from spending money I don't necessarily have as I can see a result month to month from having outflow of cash. As Joe mentioned - no more lattes in the near future which will help you pay off this debt which will be a bigger relief than a fashion statement. Having used budgeting software and attempted to stay in budget has been useful. I still over spend a little on food and can see the ramifications immediately. In short, try creating and sticking to a budget no matter the urge. As far as insolvency is concerned I'd struggle with paying it down before I do that. The thought passed my mind but I bit the bullet. DO NOT walk away from the debt however. That isn't a good idea Either. Budget and bite.

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Welcome to Money.SE I added a link to the budget software you suggested. I've met the guy that designed it and heard him speak in public. –  JoeTaxpayer Mar 15 at 19:52
    
Thanks. I forgot to mention that I wouldn't trust entities on the internet. There should be a Aus. Gov't agency that can help or guide him. The best thing he can do is call the credit card and ask them to lower his rate. He should explain his situation - no sob story though. I'd hope that he'd use the money saved on interest to pay off either the car or credit card first. Pay on the credit card for a while though to it loosens some money. As far as YNAB it is great and goes well beyond what others do. I just hope he doesn't jump and contact some of these internet "help" people. –  user13721 Mar 15 at 21:19
    
@user13721 - The link I provided for Centrelink's Financial Information Service, is a free service provided by the Australian Government. I have also provided various option available to the OP together with warnings for each of them. It is not our job to recommend one over the other as we don't know the OP's full financial situation. Someone who is really struggling with their debt to the point it affects their life, may have no option but to take drastic action. But they should pursue proper financial advice before taking such action. –  Victor Mar 15 at 22:03
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