The New Year is, and always will be, that time of year when people make choices to correct the mistakes made from the year before, vowing to be better, and setting goals to achieve their success. It’s little wonder then that gym memberships and attendance go up in January and even less wonder that the attendance goes down rapidly from March onwards.
Getting Lean in 2019
In the financial space, each new year starts similarly. Having survived the spending spree that is November to December, most families make bold plans to make this to be the year that they stop the rot, and get on track with their finances. I don’t know the stats, but I am sure – just as gym memberships peak in the month of January – so to, do sales of books on budgeting strategies & investment methods, appointments with planners and advisors.
That early fever pitch usually would last until say at best Easter (hey, we aren’t judging here – we are guilty of this ourselves) and at best June (to be fair, that’s pretty good!). Once the year rolls on, old habits kick in – especially when unforeseen expenses pop-up as they do (at the most inconvenient times). What hurts the most: those results of the spending spree from the previous silly-season, are still affecting the bank accounts well into the first quarter of the new year.
In December of 2018, Australians swiped, tapped, waved or signed $29.7 billion in Credit Card spending. That’s not the total for 2018, that’s just the total for December! That $29.7 Billion also equates for something to the tune of $237m in interest repayments (forecasted).
$237million, just in interest.
Now I don’t want to point out the obvious here, but that $237m in interest doesn’t exactly work in the cardholder’s favour. Interest fattens the banks’ pockets, not your own. What makes these stats even more alarming, is that the old trick of transferring the card balance has now become a lot more difficult, thanks to legislative changes, valid from Jan 1, 2019. So gone are the days of merely shopping around for whoever has the best balance transfer options.
It’s these stats alone that are driving our passion for helping clients “Get Lean in 2019” – yes, it’s a cheesy tagline, but it works.
The stress that $237m in interest places on households, cannot be understated. And when you add that with the ease of access to a variety of Cards, options and rewards-incentives, you can understand why experts are now advocating extreme caution when applying for and using credit cards. If you are haemorrhaging interest through credit card debt, how do you stem the flow, and try to breathe some life back into your finances?
Note: paying the minimum required repayments each month will not stop the blood flow.
The internet is full of strategies and advice on how to save yourself from death by credit card debt – but honestly, if those methods worked wouldn’t we all be debt free? Unfortunately, most of those strategies aren’t sustainable or realistic, because they do not factor in human behaviour. We like to spend, it feels good (even when paying for unforeseeable, and even more so when we “earn” points), and it feels better when it’s on Credit. We have been conditioned this way for a long time now. It’s also the exact same behaviour that banks prey on to attract more customers or entice existing customers not to go elsewhere.
The first step then is to stop using the Cards. I know that this is incredibly simple, but it is also incredibly practical. Going back to our gym/ weight loss analogy – if the bad food (the cause for weight gain) isn’t in the house, then you are less inclined to eat bad food.
So, if your credit card is cut into a thousand little pieces (or burnt at the stake – whatever takes your fancy), then you are less inclined to use it.
Of course with the ability to order a new card and have it in the letterbox the next day, or store your card information digitally, the problem becomes a little more involved. You have to work at changing the behaviour, by looking for those little triggers that trip you into thinking “No worries, I’ll just pop that on the card, and deal with it later”.
So Step 1 is cutting up the cards, deleting the stored information from your devices, and refusing to order that replacement. That action alone breaks the pattern. And then you can move on to Step 2, paying that bloody card off, fast (more on that next week).
Before we talk about more strategies to removing debt, there are a few obvious points that need to be addressed: Yes, credit cards can be useful, if used the correct way. Unfortunately, the greater majority are not, and the data supports that. However, cards can be used effectively, with the right strategies – we will have more on that soon.
Make no mistake about it, Credit Cards, store cards and the like are designed to provide convenience (which they can), but they are also intended to provide profit to the card issuer. That’s not tin-hat cynicism, that’s pure business. And there is nothing wrong with a bank wanting to improve their bottom line (seriously, as if they really need to), but when that bottom line increase comes at the cost of millions of dollars in interest paid by you, serious credit card debt, and dubious sales tactics – we take issue with it.
Getting Lean in 2019 isn’t just about Credit Card debt, it’s about helping our clients find a path to better money management, severe debt reduction and ultimately more of their own money in their own pockets, so can do whatever they want!