How to solve your debt dilemmas 

Free Yourself From Debt by Paul Clitheroe is a timely book considering how many Australians have financial problems and our national debt is so high.

Here Clitheroe answers some questions:

Can you exist without a credit card in Australia today? If so, how?

Yes you can, and you should if your card is out of control. Cash is still very powerful and on larger items you will get a discount if you ask. A debit card lets you access your money easily and will not let you spend money you do not have.

And if you do have a credit card, how do you ever pay it off?

Well, the starting point is to stop the bleeding. Go to MoneySmart, the ASIC website and do the excellent budget planner. If you are spending more than you are earning you will have an ever increasing credit card balance. If necessary, cut the card up and commit to paying more than the minimum each month. Financial counsellors are very helpful if you need help. Phone 1800 007 007, it is a free service.

How do you avoid paying interest on credit cards?

By having a plan. Credit cards are terrific if you use them and pay them off inside the interest free period. Then you can use the bank's money for a month or more, earn interest on your money in the bank, then pay the card off in full and you may also get frequent flyer points . The trouble is, most people don't pay the card off in full, pay huge amounts of interest and the award points barely buy a toaster.

A big question, why are we in so much debt?

Powerful marketing tells us we can have a better life and all sorts of stuff just by pulling out a credit card. We are humans and we do love buying things. One hundred dollars or so here and there does not seem much, but it soon becomes thousands on a credit card, often at 18 per cent interest. We need to recognise that financial institutions make money by selling us money, at high rates of interest, on credit cards. It really is up to us to recognise that, have a simple money plan and only spend what we can afford.

Most people love a shopping spree but the only way to become and stay debt free is to live within your means.

Most people love a shopping spree but the only way to become and stay debt free is to live within your means.

Do lessons need to be taught much younger in life?

Yes. Parents and grandparents need to realise that money is becoming invisible, it is all bank transfers and plastic cards. We need to make money visible to kids by talking about our plan to spend less than we earn. We need to demonstrate our own self control by demonstrating that we buy inside our means and there are many things we just cannot afford.

What are the main common debt traps and how do you overcome them?

A mortgage, providing it is a sensible amount based on your own situation, is a great idea. It is "good debt" if it is buying an asset, the interest will be quite low and we tend to pay it off. The debt to avoid is really high interest consumer finance and some credit cards where you are paying, at times, well over 20 per cent for things like holidays, which have no real value. Basically, get rid of bad debt as quickly as you can by doing a budget and planning your money.

Free Yourself From Debt: How to Take Control of Your Finances by Paul Clitheroe is published by Penguin, rrp $19.99. 



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