Eliminate debt from your life
25 Feb 2019
If personal debt is dragging you down, what are the best ways to get back into the black?
There can be many reasons why you might feel under the pump financially, particularly if you no longer have a steady income. Perhaps you put more on your credit card than you intended in the Christmas holiday season; your car has seen better days; you’re facing an unexpected medical bill; or you’re being asked to contribute to a child’s wedding.
With more people now entering retirement with mortgage debt, they can also find personal debts building to an uncomfortable level.
For some, the answer can be taking a lump sum from their super to pay off accumulating debts, while others try to juggle credit cards.
Sometimes it’s only when retirees approach their credit card provider for a limit increase that they realise they are no longer as attractive to financial providers as they might have been in the past.
Similarly, they might find financial providers are not very keen if they try to apply for a new credit card via an online application process.
Kate Browne, personal finance expert, Finder, a comparison website, says: “When you’re retired it can be difficult to access credit. Some lenders won’t deal with you at all if you aren’t in regular paid employment.
“And with new regulations restricting credit card limits, seniors can feel trapped when it comes to accessing credit without dipping into their home equity.”
So what’s a retiree to do? Start by applying some of the usual methods for reducing debt and reining in spending.
Scrutinise your spending plan
Check your spending for leaks – such as unnecessary fees and fines – and areas where you could trim back or be more disciplined about the way you spend. If you haven’t given your budget an overhaul in the past year, you may be surprised at what you find.
Laura Higgins, senior executive leader, financial capability, Australian Securities and Investments Commission, suggests looking at financial products and services as well as everyday spending items. “I think when people do that stocktake they find some savings there, and that’s quite rewarding.”
Minimise your interest costs
If you are only making the minimum repayment on your credit card or not paying it off in full each month, you will be racking up interest and adding an extra cost to your spending plan. Pay as much as you can – ideally, all of the outstanding balance – each month to keep your interest costs as low as possible.
Look for lower-cost options
If you regularly pay interest on your credit card balance, it may be time to investigate loan alternatives. Finder.com.au has a list of loan options available for retirees by bank and by purpose.
The advantage is that you will pay down the loan with regular repayments and the interest paid overall can be lower than if you are being charged interest by a credit card provider.
According to Finder, some financial institutions will lend to retirees, but it’s important to check the financial provider’s lending criteria and provide documented proof of sources of income, details of debts and liabilities, and your assets including your home, rental properties and vehicles.
The institution will want to know the amount you want to borrow and the length of time you will need to repay it.
People who are relying on Centrelink payments as their sole source of income and those in steady employment even if it’s only part-time work can still be eligible for a loan.
The Finder website shows some lenders have a minimum annual income requirement and this can be between $14,000 and $30,000 with major banks.
Others will only assess applications from retirees on a case-by-case basis.
“Whether you are trying to make a big purchase or pay off old debt, get on the front foot, compare your options online and make an informed decision,” Browne says.
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