Paying top dollar for credit cards

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Credit card concern

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Q I have two credit cards - one with $1100 on it, the other with $6700. I put lump sums on it when I can, but find it hard to eliminate the debt.

I have a tax return coming soon. Should I put all $2000 on the cards?

Thanks, Jessica

A Hi Jessica,

You're going broke. Here, let me show you. If you continue only making the minimum repayments on your two cards (total debt $7800), it'll take you 43 years to pay them off, and by then you'd have repaid $30,155 to the bank!

You may think what I've just done is a ridiculous calculation - especially given credit cards are seen as a short-term loan.

But stop and think for a moment about how many years you've been carrying a credit card debt. And remember, my calculations are dependent on you not getting into any more debt, which you've been doing.

So if you're ever going to become debt free and reclaim your financial self-esteem, you need to make some radical changes.

Put the $2000 into a savings account.

Use it as backup in case of an extreme emergency. (note: a hairdressing appointment is not an emergency).

Cut up both credit cards today - vow never to use them again. Then start direct debiting as much of your pay packet as you can to clear your cards.

WASTE OF MONEY

Q Hi Scott,

I'm a 24-year-old uni student currently finishing off my postgraduate degree.

I live at home and owe approximately $75,000 in HECS. I have $13,000 in a medium-interest account and $35,000 in a high-interest account.

I intend on starting full-time work next year.

I'm not sure whether I am using my savings effectively and whether I should pay off my HECs as soon as possible.

I look at my future; not so great with my mountain of student debt and a bleak-looking job market.

I studied commerce as my undergrad and I am annoyed at myself for not knowing how to handle my finances better.

Any general advice you can give me?

Cheers, Martyn

A Martyn,

How the hell did you rack up a $75,000 HECS bill for a commerce degree?

I'm sure there will be plenty of readers who are annoyed their tax dollars funded such a wasteful over-investment.

Seriously dude, who was your lecturer? Bill Gates?

And that's the thing - HECS is an "income-contingent loan", which means the Government has effectively picked up your tab and given you an inflation adjusted IOU.

Currently you get a 5 per cent discount for making upfront payments of $500 or more (which is being phased out completely on July 1, 2014), but I wouldn't bother. Just let it be taken out of your wage over the years.

RISKY BUSINESS

Q Hi Scott,

I'm in my early 30s, recently married and currently trying to move from the city to a little country plot.

My husband worked three jobs in his 20s, and built up a great property and share portfolio while he was living with his folks.

We went to see our accountant recently (tax time) and he said: "Don't buy a house now and sell all of your shares, because we are about to head into a stock market crash. Share and property prices are about to fall through the floor."

How much of all of this should I believe?

We have a big chunk of our deposit sitting in shares and property.

The whole thing is stressing me out.

Can you help?

Cheers, Ruth

A Ruth,

Your first problem is that your accountant is a weirdo.

Professional advisers don't say things like that.

If you're planning on buying a family home you'll live in for at least the next decade, it's likely it'll be one of the best investments you'll ever make (financially, and emotionally).

Your second problem is that if you're planning on buying your home within the next five years, you should not have your deposit invested in higher-risk assets like shares or property.

It's too risky.

Keep it in a high-interest-paying online savings account instead.