Escape the red zone
Millennials may be saddled with debt but there are ways to get on top of it
I
’ll be honest – I hate generalisations.
I don’t like reading that the
majority of young people feel
entitled. That our apparent excessive
spending habits are why we can’t get
into overly inflated housing markets.
Assigning labels to people can be
troublesome and is often offensive.
However, there is an element of truth
to the great myth of the millennial
spender. While it’s incorrect to
claim that most millennials have
an excessive spending problem,
research shows that people in our
age bracket are in more debt than
gen Xers or baby boomers. But there
are reasons for this.
According to research by credit bureau
Experian, millennials with a mortgage,
credit card or personal loan have an aver-
age debt of $428,000, which is $146,000
more than the average for gen X and baby
boomers. This is explainable. If you have
a debt of around $400,000 you’re likely to
have a mortgage (if not, you need serious
financial counselling). Gen Xers and baby
boomers are most likely to have smaller
debts because they’ve had more time to pay
down a significant chunk of their mortgag-
es. And in some areas house prices have
risen astronomically, so new mortgages
there are getting larger.
For credit cards millennials have an aver-
age debt of $12,700, which is over $4000
more than the average of a gen Xer. I have
my own opinion on this (don’t even get me
started on the cost of living) but the fact
is that purchasing card credit is now com-
paratively a lot more expensive than other
types of debt. While the official cash rate
has plummeted over the past few years,
along with rates for home loans and savings
accounts, credit card interest rates have
remained consistent since about 2010.
Credit card debt is a lot more common
than you think, with only 40% of credit
card accounts paid off each month. If you’re
in trouble with your credit card, there are a
few things you can do to get out of the red:Steph Nash STARTING OUT
Staff writer Steph Nash has a bachelor of
communications degree.I If they are spiralling
st step should be to
ses. Compile a list of
penses and see how
t our income, including
y income from savings
accounts or investments. Look at your out-
standing balance, the interest rate on your
cards and your minimum monthly repay-
ments to work out your total debt.
You should then reassess your budget
and work out what changes you need to
make. It might be the case that you need to
find better deals for your utilities or higher
interest rates for your savings or, unfortu-
nately, cut back on splurge items.
How do you work out the order of
importance in tackling your debts? List
each in order of interest rate, from highest
to lowest, and then by balance size if two
have the same rate.
Create a cash buffer. Have a small portion
of your income transferred to a savings
account every payday. It’s important tohave a stash of cash on hand to be able to
pay at least your minimum repayments.
A high-interest savings account would be
perfect. If you’re not doing so already,
you should definitely arrange for
your credit card payments to
be automatically deducted from
your everyday account. Pop
all your due dates into your calendar
(tactile or electronic) to remind you to
check that you’ve got enough in your
account to make the repayment. If not,
you’ll have to organise for it to be made
from the emergency fund.
Switch to a low-rate credit card. It is
much friendlier to your pocket than a
standard rate version. Look for a card that
has low fees as well as a low rate. You can
easily compare $0 annual fee credit cards
online using the Money magazine website
(moneymag.com.au). These cards might
be short on bells and whistles but if your
income isn’t stable and you’re relying on
the card for cash flow the low interest rate
will be better for you than the rate on a
standard card. You’re more likely to get a
low rate outside the big four banks. In Feb-
ruary Canstar data showed that custom-
er-owned banks, which include building
societies, credit unions and mutuals, were
on average 5.7% lower than the big four.
Consolidate. If you’ve got debt on multiple
cards or are looking for a way to pay down
your debt faster, consider making a balance
transfer to a card with a 0% purchase rate.
These cards are often fixed for a number
of months so that you have more time to
reduce your debts. When comparing bal-
ance transfer offers, consider what the rate
reverts to once the promotion period has
ended, as well as the annual fee.
Don’t raise your limit. While it might be
tempting to take up an offer to increase
your credit limit, you may live to regret it
if you can’t meet your repayments. Before
you apply, consider if you really need it.It’s important to have
a tash of cash to meet
minimum repayments