How can I manage my Credit Card Debt in Australia?

Question

35K in credit card debt and personal debt (17K Credit Card 16% interest rate, 18K Personal Debt,Variable Rate 5yrs & 8mths remaining). I used the advice in Battling the credit car debt in Australia to Apply for a Consolidated Personal Loan from CBA and also applied for a 20K balance transfer with Citi Bank transfer Platinum Credit Card (Interest free for 2 years).

I want to use the consolidated loan to pay off the credit card, and then use the 20K from Balance transfer to offset the consolidated loan by 20K. ( Assuming this was a possible option). Hoping to have saved enough to pay of the new credit card debt before the 2 years interest free term is up or being as close as to having paid it.

My plan is to tighten the belts in every way, e.g. moving to a lower rent (less than 350 p/w rather than the current 460p/w), keeping a dead grip on every week expenditures (before I never realised how much I was spending).

Is what I am trying to do in accordance with the advice I got? Can I do anything more? Or am digging myself a bigger hole?

I am 42, with no saving and almost no super, I have worked very erradically for past 20 years after leaving Australian Army with depression, Should I consider bankruptcy and save for retirement in 20 years or paying up my debts and hoping to have enough in 15 years after having paid the debts ( hoping for the best ).

In case of death would my debts pass on to my next of kin or family?

PS: I will not use the Platinum Card under any circumstances and save everything I earn into the personal loan account to reduce the interest repayment on the loan. I will also be reducing the limit on the original card to 100$ as I need it to pay for online courses I take.

Answer 1

Some things you should consider:

Balance Transfer

• Usually you can only make a balance transfer from one credit card to another, and not from other personal loans. As your current credit card debt is $17K you would only be able to transfer this amount to the Citibank 2 year interest free card.
• With the Citibank 2 year interest free card you can only transfer up to 80% of your credit limit with this card. This means you will need to be approved for a credit limit of at least $21,250 to be able to transfer your total $17K current credit card debt. Do you earn enough income to get this limit approved.
• The Citibank 2 year interest free card comes with a 3% balance transfer fee. For your intended $17K balance transfer this would be a fee of $510.
• After the 2 years interest free period the interest rate on this card reverts to 21.74% p.a. (or higher if official interest rates rise in that 2 year period). So for any balance you have not paid off in the 2 years you will be paying more for than at you current interest rate of 16%.
• To pay off the $17K in 2 years you will need to pay $163.50 every week plus the $510 balance transfer fee at the start.

Debt Consolidation

If you get approved for the Citibank 2 year interest free credit card on balance transfers, you will need another loan of $18K to consolidate your other debt. If you cannot get approval for the credit card you may need to get consolidation loan approval for your full $35K of debt. This approval again will depend on your income and your ability to make repayments. As it sounds like you don't have any assets, you may have to get an unsecured loan which comes with higher interest rates.

Remember a consolidation loan is only worthwhile if you can get an interest rate lower than your current interest rates and if you pay as much as possible to reduce the term of the loan and the total interest you end up paying.

You haven't given the interest rate for the consolidation loan, but lets assume you could get one at 12% p.a. over a 3 year period. For a loan of $18K you would have to pay $138 per week. Together with the $163.50 per week you would have to pay the credit card balance transfer, your total repayments per week for the first 2 years would be $301.50, then $138 per week for the 3rd year. This option sounds affordable, but without knowing what your income and current expenses are it is hard for others to determine for sure.

If you had to get a consolidated loan for the full $35K at say 12% p.a. then your weekly repayments would be $268.30 over a 3 year period. This looks to be achievable too.

Being Disciplined

As you said you will need to be very disciplined in order to get out of this debt. You will need to set up a proper budget and watch every dollar you spend. You will need to restrict any spending on credit cards and getting any new personal loans.

You say you will keep a small credit limit to pay for ongoing online payments for courses. Make sure you uses a 55 day interest free credit card (preferably with no annual fee) for this and pay the full amount due every month, so you don't end up paying any more interest on this card.

In case of death would my debts pass on to my next of kin or family?

If your debts are unsecured (which personal loans and credit cards are), then no your next of kin or family will not have to pay your debts if you die. When you die any money or assets (which would be sold) in your estate will first be used to pay off any of your debts. If there is not enough money or assets in your estate then your remaining debts may not need to be paid.

Other people are only responsible for paying your debts after you die if:

• the debt is secured against a particular asset owned by someone else
• the debt is in joint names with someone else
• someone has guaranteed the debt.

Bankruptcy

An alternative to Bankruptcy is a Part 9 debt agreement, as I mentioned in my answer to your previous question. In this case you will still need to pay off at least part of the debt but will not be charged any further interest on the debt. This is not as severe as Bankruptcy, but as I mentioned before, should not be taken lightly. 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. Bankruptcy or a Debt Agreement should only be used as a last resort if you are unable to undertake any other option. And remember, even if you do take this course of action, you will still need to be disciplined now and into the future, so you don't end up in a similar situation again.

Answer 2

Why not just get a consolidated loan for 15K, and then $20K zero transfer?

The Loan will have a payoff on the amount borrowed, probably a fixed payment which would be more than double the payment as if it were only $15K to start. That make sense?

If you are approved for both pieces of this, it should help, what is going to be the rate on the loan?

The process you are starting has 3 aspects - cut spending, reduce interest, minimize payment obligations. If you do anything to earn more, even a few hours a week it will add up.

I would not reduce any credit lines. In a perfect world, you will have a buffer of money to cover any expense. Until then, available access to money is important, but of course to be used either for emergencies or when cash is there to pay the bill in full when it comes in.