5 Common Credit Card Traps

5 Common Credit Card Traps

Credit card providers love to use all kinds of incentives to get you to put that shiny piece of plastic into your wallet, ripe for usage at your weaker moments. Here’s how to avoid getting snared in credit card debt.

Most humans love to spend. It’s a scientific fact. No joke, going shopping tells your body that it should start producing greater amounts of the feel-good neurotransmitter dopamine.

Credit card providers know this well and have plenty of tricks up their sleeve to get you chasing that high with their high-interest credit.

Here’s how to avoid some of their more common traps.

1. Points and bonuses

You know that dopamine rush we were just talking about?

Well, sometimes people end up spending a lot more on their credit cards than they would otherwise because they’re chasing points and bonuses.

If you’re one of those who likes to collect points through your credit card – and can’t be convinced otherwise – remember to set up a system that will ensure you pay it back straight away.

This could include a direct debit, or an e-calendar reminder, to ensure you avoid high interest and fees which can cancel out any bonuses received.

2. Interest-free periods

There are a lot of credit card providers out there that offer interest-free periods, just hoping you won’t check the fine print.

Some retailers will offer 12-50 months with no interest and no repayments, making it possible for you to walk away with a shiny new product without spending a cent.

However, once the interest-free period ends, interest rates can be up to 30%, and the credit provider is under no obligation to remind you when that period ends.

Additionally, if you purchase anything else on that card other than the original purchase, it probably won’t be covered under the initial interest and repayment free conditions.

A couple of final warnings: interest free doesn’t mean fee-free, and the product you’re buying might be more expensive at the store than elsewhere.

3. Cash advances

Almost everyone has, at some stage, reached a point where they’re a little short of cash.

And while cash advances might seem like a good option to tide you over, they actually accrue a much higher rate of interest straight away (up to 30%), not to mention a cash advance fee which is usually a percentage of the amount withdrawn.

If you want to make the most of your credit card and all the benefits it has to offer without ending up stuck in a tough repayment cycle, be sure you understand the post cash advance interest rates, and make sure that the cash withdrawal is really worth it.

And, if you really need to access a bit of cash, try asking a family member or close friend first. As an absolute last resort, you could purchase their groceries, fuel or pay their bill using your credit, then they could immediately reimburse you in cash.

4. Multiple fees

On top of regular annual or monthly fees, many cards have additional fees that will vary depending on how you use your card.

You can be charged extra fees for failing to meet minimum repayments, for exceeding your credit card limit, and for withdrawing money.

Be sure to understand your card fee structure, and use responsibly.

5. Paying only the minimum

When it comes repayment time, be careful about only paying the minimum amount outlined on your bill.

This amount will leave a balance that will continue to accrue interest, and will end up costing you more in the long run.

You should pay back the maximum you can afford, lessening the time it will take you to pay off your card in full.

Final word

Not all debt is bad. We appreciate that better than most. But it’s fair to say that credit card providers don’t have your best financial interests at heart.

If you’re tempted to get a new credit card, get in touch with us first. There’s a whole range of better financing options out there, all of which we’d be happy to run you through.

It’s all about balance: Using an offset account to your advantage

It’s all about balance: Using an offset account to your advantage

Want to avoid sinking your entire savings balance into your mortgage? An offset account could be the solution you’ve been looking for.

An offset account is straightforward to set up and easy to understand. It also has the potential to save you thousands of dollars and could shave years off your mortgage.

Got your interest yet?

Yup! But what’s an offset account?

Basically, an offset account is a regular transactional account which is linked to your home loan.

The advantage is that you only pay interest on the difference between the money in the account and the mortgage.

Banks usually offer two types of offset accounts – full offset account, or partial offset account.

A full offset account means that the entire amount in the account is deducted from the principle before you start to pay interest.

In a partial offset account, a reduced interest rate on the mortgage is offered on the equivalent amount in the offset account.

Whichever you choose will depend on the bank and the type of mortgage you have.

How does it work?

Say you owe $350,000 on your mortgage, and have $50,000 in a savings account that you currently use for regular transactions.

If you move that $50,000 into a full offset account, you’ll only pay interest on $300,000 (which is the difference between that amount and the loan principle).

The offset account can then continue to be used for all your daily needs, like receiving your salary and withdrawing cash.

Why else would you consider an offset account?

Well, say for example that you had a savings account with a 3% interest rate and a mortgage with a 5% interest rate.

By allocating money into your full offset account, you’d save more money on interest than you would earn in your savings account.

Additionally, interest on your savings accounts are subject to tax, whereas the interest-saving on your mortgage isn’t.

How much can it save me?

Under the right circumstances, a lot.

Using the example above, if you’re 35 when you take out a home loan, you could shave years off a 30-year loan term just by keeping $50,000 in the offset account.

This means your loan could be done and dusted right in time for your retirement.

Is it right for me?

Of course, there are some additional factors to consider, such as account keeping fees and the minimum amount needed in the account to make it useful.

As everyone’s situation is different, get in touch and we can discuss whether an offset account might be suitable for you.

How to save for a first home deposit

How to save for a first home deposit

So you’ve decided to finally take the plunge and start saving for a deposit to buy your first home? Here’s a few handy tips to get you started.

Saved for a holiday before? Or a car? What about TV or computer?

The good news is that saving for a house deposit isn’t too dissimilar. It’s just on a much grander scale.

However by following the tips below you can achieve that goal in a year or two.

Step one: Create a budget

Your very first step is to work out exactly how much you can put away in a savings account each month. And to do this, you need to create a monthly budget.

First, calculate your income: Look at your pay slips or your bank statements to see how much is going into your account on an average month.

Second, work out your expenses: Check your bank statements, bills and receipts to calculate how much you’re spending on things like rent, groceries, transport, medical expenses, utilities and clothing. Include payments you make once or twice a year, like car registration, and work out the monthly cost.

Third, set up your budget: Once you know your income and expenses hop online and use our free budget planner to crunch the numbers.

Four, review, cut back and save money: A daily take-away coffee costs $120 a month. So too does about fifteen drinks at a bar over the course of a month. Eating out at a restaurant, or takeaway food, is also much more expensive than cooking at home. Regardless of your vices, the best way to stop any wasted spending is to track your money over a month or two and identify where the leaks are.

Step two: Work out how much you’ll need to save

While most of us dream of living in that $1 million home nestled in an inner-city leafy suburb, set your eyes on something a little more realistic.

Remember, you have to save a deposit of about 10-20% of the property’s value,.

If it’s your first home you’ll most likely aim to save something in the ballpark of $200,000 to $500,000.

That means you’ll be looking to save anywhere between $25,000 to $100,000.

Step three: Set timelines, track your progress

Once you’ve determined a figure you want to save, you now need to create a roadmap to get there.

The first few months will be the toughest, so set realistic expectations to begin with and increase as time goes on. Rest assured however that as you see your savings increase, you’ll be more and more motivated to cut back on your expenses.

For example, aiming to save $1,000 for your first month, and then finding an additional $100 in savings each month means you’ll have saved more than $20,000 (incl. interest) over the course of a year.

Even better news, in 18 months’ time you can have enough for your home deposit if you start saving now.

Sticking to these goals may mean you need to opt for a local holiday camping at a nearby national park instead of jet-setting overseas.

But remember, short term pain for long term gain.

Step four: Look into savings accounts and schemes

Once you’ve started saving you’ll want to make sure you’re not tempted to spend it. Look into a savings account with a good interest rate or a term deposit.

Whatever you choose, make sure it’s difficult to access so you don’t get tempted to spend it.

You might also be eligible for the federal government’s First Home Super Saver (FHSS) scheme, which allows you to save money for a first home inside your superannuation fund.

This, in turn, allows you to save faster due to the concessional tax treatment that super offers.

To be honest, however, this step is very much dependent on your individual situation, so if you want more in-depth tailored advice in this area, give us a call for a chat. We’re more than happy to discuss all your options.

 

 

Get your ducks in a row: how to make a timely deposit

Get your ducks in a row: how to make a timely deposit

So you’ve finally found the property of your dreams and you can’t stand the thought of someone else moving in? Don’t let a payment oversight get in the way.

One of the most common questions we get asked is when and how to make the deposits on a new property.

And for good reason.

If it’s your first time, you’re probably nervous about locking down that property, so you don’t want a payment mishap getting in the way.

The process varies slightly from state-to-state and in private sales vs auctions, but below we’ll step you through the general process.

Payment one: a holding deposit

You’ve scrimped, you’ve scraped, and you’ve finally saved enough to buy a home. Great! Now you’ve got to work out to who, and when, the deposit is paid.

In private sales, once you’ve made a verbal offer on a property that’s been verbally accepted, the real estate agent may ask you to pay a holding deposit to show you’re committed to your word.

This figure can be between a few hundred dollars to around 1% of the purchase price. It is not an additional cost – it’s simply an advance.

Beware, however, that this holding deposit doesn’t lock down the home. It confirms your intent but another player can still come along and enter the game.

A holding deposit is also not compulsory. So if the seller asks, and you don’t feel inclined, you don’t have to cough up the dough.

If your offer is accepted and contracts are drawn up, the holding deposit is considered part of the full deposit that you’re required to pay.

Be sure to get a written receipt from the real estate agent which states they will refund the money to you if the seller decides to accept another offer – which can, and does, happen.

Private sale deposit

Now it’s time to move onto the full deposit.

In a private sale, once the contracts are signed and exchanged, you generally must pay the seller’s real estate agent a 10% deposit, unless the contract has specified a different amount (which can be around 5%).

The agent then generally keeps the deposit in a trust account until the settlement.

Now, these contracts can take a few days to exchange and sign off, which gives you time to organise how to pay the deposit with the seller’s real estate agent.

During this time, speak with them to arrange a payment method that best suits you both. Options generally include a personal cheque, counter cheque, electronic funds transfer or deposit bond.

Auction deposit

Boom. The hammer comes down and the property’s yours. Well, ok, not just yet.

If you’ve put your hand up for the winning bid, it’s usually expected that you pay a 10% deposit on the day of the auction (once again, it can be as low as 5%).

But hang on, banks are usually closed on the weekends. So how are you going to stump up the cash?

This is where it’s important to plan ahead, and where we can help make sure it all runs smoothly.

Options include writing a personal cheque on the auction day. Or getting a counter cheque from a branch before the weekend auction. Deposit bonds are also an option.

Regardless, it’s always important to check before the auction as to what options are available for paying the deposit.

But what about the deposit on my loan?

The deposit you pay the seller’s agent will count towards your finance application deposit.

For example, say you’ve told the lender you’ll be making a $50,000 home-loan deposit.

Then, when the contracts are exchanged, the seller’s agent only asks for a $25,000 deposit.

The good news is you’ve paid half. The bad news is the lender still requires the remaining $25,000 of the deposit.

Final word

So that’s the general timeline for when it comes to paying deposits on a home.

On a related note, it’s very important to ensure your finance has been pre-approved nice and early before the auction.

And as you know, that’s our bread and butter.

We can help you obtain a home loan with a great interest rate, with fees and features that best suit your personal circumstances and budget.

If you’d like to find out more, get in touch with us today.

 

 

3 Questions to consider before refinancing

Who would have ever thought we would see one of the big 4 banks offering an interest rate of 3.59%.  Without a doubt their are opportunities for you to save significant money on your home loan.

Now is the time to refinance…..  Or is it….

Watch on as I discuss 3 questions you should ask yourself before refinancing your home loan.

If you would prefer to read instead of watching the video, scroll down to see a transcript.

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Transcript

Hello, Brendan from Buyers Choice, your home financing specialist.

This week, I want to have a chat about refinancing.

Given the current climate we’re in, the number of offers out there from various lenders, a common discussion I have with various people is, is now a good time to refinance?

If you’re thinking about refinancing, I think there’s three questions that you should ask yourself before committing to refinancing your home loan.

Question 1

The first one is, has your finances changed? Have you received a pay increase? Have your expenses gone up? Your child’s moved from primary school to high school, or they’ve decided to start eating twice as much food. Have you had a new baby come into your life?

There’s various things which could have happened which changes your financial situation. As a result, it may mean it is a good time, or it could mean that it’s a poor time to refinance your home.

Question 2

The second question you should be asking yourself, will refinancing save you money?

Now, I have previously done a video on the costs which you incur when you refinance your home. It isn’t a zero-sum gain. There’s also, and I’ve mentioned this previously, the fact that if you’re over an 80% loan-to-value ratio, LMI will be involved, so Lenders Mortgage Insurance.

So between that and the cost of refinancing, it could cost you from $1000 to a couple of thousand dollars to $10,000, depending on the size of your loan and your circumstances, to refinance.

Now, if you’re, found a great new rate, and you’re saving $50 a month by refinancing your home loan, but it’s gonna cost you $1000 to refinance, is it worth it? Is it worth your time and effort, getting all the information together, putting it all together, submitting the application, going through all that, for something which is gonna take you 20 months to pay off?

No, you’re better off staying where you are. So it’s a consideration that you gotta put into mind.

Question 3

The third question you should ask yourself is, are you planning on selling your home in the near future?

And again, it’s around, if your plan is to sell, move on, upgrade, do whatever, now may not be the best time to refinance. There’s a lot of effort, you’ve gotta get all the paperwork together, you’ve gotta put the application in, you’ve gotta go through the process.

If you’re going to a new lender, you’ve gotta set up all your accounts and everything else. So as a result, if you’re considering selling your home in the near future, or your loan’s starting to get small, there’s only a small amount still to be repaid, it may not be worthwhile refinancing.

We look around and we see these great rates. Save an extra 0.25% here, fix it for three years at this new, never-before-seen and never-be-seen-again interest rate.

But unless there is a benefit to us, it’s not worth doing.

So next time when you’re thinking about refinancing, think about these three questions again.

Has your financial situation changed?

Are you going to save money by refinancing?

And are you looking at selling your place in the near future?

And if those answers don’t add up to you, just put it on hold until the next time you review your home loan.

Anyway, Brendan from Buyers Choice, great talking to you again today.

Please hit like to this video, and if you’ve got any questions, feedback, please leave a comment below.

Look forward to talking to you next time. Have a wonderful day.

Why you should have a budget!

Why you should have a budget!

Without a budget your future financial security could get lost.

Brendan Barker - Home Financing Specialist - Home Loans - Car Loans - Personal Loans

I still remember the joys of my first job.  It was the mid 90’s and I had just started as a graduate mining engineer in Broken Hill.

I had spent the previous 6 years at university between undergraduate and post graduate studies.  Having a regular income, of was that wonderful.

I could afford to enjoy life.  Enjoy it I did, while I was never a party animal, I enjoyed going out with the mates each weekend.

Bought myself a new car, a red Ford Futura.  Plus, one or two new gadgets, TV, computer etc.

Throw in a holiday or two. Not having to worry about money because I was earning a good income.

Life was good.

Or so I thought.

It was a Christmas a couple of years after I started my working career.  I was in Melbourne having a holiday.  Trying to work out how I had ended up in financial difficulty.

I wasn’t helping things with the holiday itself going on to the credit card.

I had a car loan I was paying off.

A credit card with a steadily growing balance.

A debt with the ATO, my employer had taken out the wrong amount of tax.  Not that it was their problem.

Here I was earning great money (for someone who was only starting their career) and I had nothing to show for it.  I was living pay cheque to pay cheque.

Something had to change.  But first I had to admit to myself what I was doing wrong.

I didn’t have a budget.  I had no plan for my future.  I was earning money and spending money and hoping that everything would be wonderful at the end of the day.

I had to change.

By the end of the Christmas holiday I had a plan in place.  A budget which would allow me to have some financial security.

Competition

4 steps to create your budget

  1. Work out what I was earning – easy I just looked at my last payslip. It was consistent pay to pay.
  2. Work out my living expenses – no this wasn’t what I was spending each week, but what I had to spend each week. Fuel for the car, electricity, phone, food, rent, insurances etc.  All the stuff that must be paid for each week.
  3. What did I owe – what where the debts owing, car loan, credit card and ATO and what the repayments for each were.
  4. Put the plan together – this was the fun bit
Putting the plan together

First step was to take my monthly income and subtract my living expenses and my debt repayments.

What was left was the money I had available to create the future I wanted.

The second step was to allocate this money to work for me.  I allocated some to reducing my debt, some to saving for the future and what was left I could spend as I pleased.

I can’t remember what the actual numbers, but for illustrative purposes let say I was earning $4,000 per month.  My monthly living expenses were $2,000 and I had $750 per month in repayments on my debts.

That meant I had $1,250 I could allocate at step 2.  I may have put $500 a month into savings, paid an additional $250 a month off my debts and that would have left me with $500 to do with as I pleased each month.

No guilt or restrictions on what I spent that money on.  If I didn’t spend it, I either added it to my savings or spent it the next month.

I just had a simple plan I followed each month.  When I got paid, I would put my money for living expenses aside in one account, my savings into another and pay off some debts.  I knew how much and where it was going.  The rest I got to spend.

It was simple and straight forward.

A budget doesn’t have to be complex and it does not have to be a rigid document which doesn’t allow you to enjoy life.  It must be a plan which will allow you to get ahead in life.

Uncertain whether you should have a budget?  Don’t know where to start?  Click here to get your free budget planner to help you get under way.

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