By Allison Tait, ninemsn Finance
So you owe heaps of cash? Mortgage, credit cards, student loans, car loans... when you're making room for it in your life, it all gets a bit ho-hum. There's been lots written recently about Status Anxiety how we're all spending more cash to keep up with Mr and Mrs McMansion next door, and sinking deeper and deeper into debt.
But what if it's not just about who has the nicer car or pool? Perhaps we are getting up-close-and-personal with ever-growing mountains of debt simply because we can't imagine living without it.
Think about it. When our parents were young, debt was a bad thing. People spent their whole lives saving up for stuff, so that they wouldn't have to embarrass themselves by borrowing money. Fast-forward 25 years or so and you don't think twice about putting your groceries on a credit card if you're a bit short this week.
All of which means that most of us have some form of debt hanging over us, most of the time. No wonder we've gotten used to the idea.
For many of us, the first major debt of our lives is student loans either in the form of Commonwealth HELP debt or bank loans. Trouble is, it accrues without us really thinking about it, and then, with the HELP debt in particular, we don't have to think about repayments either … those compulsory payments just start when we're earning about $38,000 and ATO takes care of it. The fact is, though, that you can make extra voluntary repayments to the tax office at any time. That's right, you can make major inroads into that debt whenever you have a bit of extra cash. But how many of us do?
Well, here's some motivation: for every voluntary repayment of $500 or more that you make, you receive a bonus of 10 percent of the repayment you make. For more details, visit www.goingtouni.gov.au
Getting less comfortable with your uni debt means you might see the back of it years earlier.
Robbing Peter to ignore Paul
As Emily Chantiri says in The Savvy Girls Money Book (Pier 9, $29.95), "There is no magic number, no dollar figure, that implies you are in debt...Debt is when you are living beyond your means. It's not the amount you spend, or what you spend it on; it's whether you can afford to pay it off."
But what happens if you do have the money to make inroads into that debt you just don't want to? After all, you've lived with the debt so long, and there's nothing quite like the heady feeling of having money in the bank. That little 'rainy day' nest egg that provides a cushion in case life goes pear-shaped. All financial experts say you should have one, right?
Well, yes. But not if your nest egg amounts to $1000 and your credit card debt is sitting at $2000. It might give you a warm glow to check your bank statements each month, but the truth is that you have no savings while you are paying interest of 15 percent or more. Face it, the most you're earning on your thousand bucks is 6.5 percent in a high-interest account.
You're losing money fast!
On the bright side, if you plough your current 'savings' and future amounts you were planning to 'set aside' into your credit card debt, it's win-win. Not only will you pay down the debt, but the extra cash you'll have from not making interest repayments in the future will build your savings back up in next to no time.
Your cash is not your own
In these days of easy credit and relatively low-interest rates, it's not that hard to slip into the habit of living beyond your means. You make the minimum repayments and life goes on after all, everyone you know is in debt too. It's just part of life. Except it doesn't have to be.
While you owe money, your income is shackled to that debt. Without it, your money is your own. Imagine not having to sit down each month and work out how much of your precious pay packet is going to go on interest repayments. Instead, it might go toward investing, a fantastic summer holiday or a new pair of fully paid-off shoes.
Living with debt is living with the knowledge that, at some point, it needs to be paid off. Living without debt is living.
For help out of a debt rut, contact a financial counselling service, such as that provided by The Salvation Army (www.salvos.org.au) or visit www.facsia.gov.au for information about the Commonwealth Financial Counselling Program.
*Source: Reserve Bank