• intouch magazine | #04 | september 2015

The REAL Cost of Debt

There’s been a lot in the news lately about the pitfalls of zero interest balance transfer credit cards. Studies have shown that many people who take up these “saviour” offers end up with double the debt and, after the interest-free period expires, a high-interest credit card. (Tip: if you do go down this path make sure you cancel the original credit card so you aren’t tempted to use it once the balance has been transferred).

This is just one cost of debt (more debt) – but do you really know what it costs you to be in debt? Are you thinking that you can handle it or is it getting you down?

In fact, debt is a lot like smoking. When you start out, you believe you’re in control and you can quit at any time. As the months and the years roll past, this initial belief does not fadeaway. With every debt you incur, the mantra “I can afford this” repeats itself in your subconscious, until you wake up one morning and realise that you’re in over your head. Debt has well and truly caught you in its trap.

Debt has become a bad habit. And just like any bad habit, debt requires as much hard work and discipline to shake. The fist step in the process is to acknowledge that you have a problem instead of turning a blind eye, hoping it will go away or thinking that you’ll get around to it some day in the future.

One of the motivators to setting your feet on the path to debt-free living is to look at the real cost of that debt. What is it doing to you? Where does it hurt the most?

Most debts (the ones that make you cry into your morning coffee anyway) are the ones that are incurred for a period exceeding one year. You’ve probably seen or heard advertisements that go something like this:

Buy your ‘Wiggly Snoogle’ for this special one-time limited offer today – 24 easy monthly instalments.

Beware – this is where you can fall into the deadliest trap of them all.The interest rates are usually above average and you’re stuck with a long term contract. Yes, getting your Wiggly Snoogle with the 25 000 features sounds like a good idea because of the easy monthly payments, especially if you compare it to the one-time lump sum payment. (By the way, using the ‘lump sum’ to ‘monthly payment’ comparison is a well-known sales technique to separate you from your hard-earned cash), but this is where the lenders make their money. The longer they can have you in their clutches, the longer they can smile all the way to the bank and keep you groaning on your way to work.

Sometimes debt is unavoidable, but as a species we’ve become too complacent about debt and we jump into it without thinking.

Your Magic Plastic (a.k.a. Credit Card) is another one of those fiendishly sneaky vils the banks developed to rid you of your money. If – and that’s a big if – you manage your credit card correctly and pay off the full amount at the end of each month, they can be great to have and smooth the little rough patches in life. But most of us only pay the minimum amount required each month – and that’s exactly what the banks want. It leaves you in the red and owing them money. Which gives them ample opportunity to apply the thumbscrews. Remember, every month you’re in the red, you’re paying interest on the outstanding amount which gets added to your bill.

The big mistake we all make is to look at our monthly statement and say: “Hey, that’s not too bad. I can still afford my repayments. And I have some credit available to buy that wiggly snoogle as well!” The problem arises when you battle to make your income stretch through the month because of the various different repayments you have to make.

It’s critically important that you start looking at the TOTAL COST of your debt over your lifetime. Once you’re over the shock and horror of how much of your hard earned cash is going up in smoke, you’ll be in a position to tackle the problem head on and take the path to debt-free living.

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Every month intouch magazine captures the unique spirit of our region and grabs the attention of the community. Intouch magazine showcases what’s hot, what’s on and who’s who with a dynamic blend of inspirational articles, lifestyle features, fashion, events, food and travel – it’s the go-to source for people living in (or visiting) Newcastle, Lake Macquarie, Port Stephens and The Hunter Valley. It’s the place to be seen to build your reputation, tell your story, launch a new enterprise and keep the community intouch both in print and online.



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