Surviving the Credit Crunch: Work Smarter, Not Harder

Author: Mike Jarocki.

If you’re relaxing for the time being thinking you’ve escaped the credit crisis plaguing Australia and the rest of the world, you may need to prepare for the next wave of debt.

If you own a credit card among other forms of credit, you’ve undoubtably already been affected. If you haven’t already received notification, your credit card’s interest rates and fees have most likely been raised by up to a couple of percent.
However, it’s not these factors which will drive you to frustration and possibly debt. In your fine print, new killers likely lurk, such as late payment interest rates of up to 36% and severe fee’s for other nuisances. It’s more important than ever to re-read your terms and conditions for your credit cards.

Seen your superannuation statements recently? Across the nation, Australian’s superannuation shares have dropped approximately 11% in the past 15 months.

So how can you survive the credit crunch? Here are 6 tips to reduce the effect of the financial crisis.

You may be sick of hearing the phrase, but by not ‘putting all your eggs in one basket’, you can significantly reduce the risk of all your funds drastically falling. With a broad mix of shares to diversify the impact of the downturn, you can maintain your asset value as some companies will lose value less than others. For example the mining industry in Australia is still growing and is less effected compared to the real estate and finance industry.

Although your funds, shares and credit limit are down for the time being, they will recover. People tend to panic and some even sell straightaway with a fearful mindset that they’ll lose more money, however the recession will boom again in time. Markets and investments always move in cycles, and although you may have wanted to retire this year or next, it may be wise to work that little bit longer, or at least hold on to your funds while retired until your money recovers to it’s former glory.

Although the initial thought of spending a consulting fee can be off-putting, you know that deep inside the knowledge an expert can impart and advise you will be priceless. Think of a finance expert as a “doctor for your money” to make it fit and healthy again. For example if you have been recently made redundant there are some ways to save tax on payouts.
Paul Bilson, from Woodwood Nhill Financial Planning, said: "See a planner, as the
tax differences in the choices can be significant. The maximum tax-free portion of
any redundancy payout is $7350, plus $3676 for each completed year of service. So,
if you had 10 years of service, you'd be entitled to $44,110 tax-free. Anything
above that would be taxable.”
Putting your redundancy payouts into superannuation may suit you, but if you are under 55 you won't be able to access the funds, which is a bad idea if you need the money at the time.

Spending an excessive amount on your phone bills every month? Whether it’s landline or mobile, the only cost of chatting online is the cost of a microphone. Typically you won’t be able to swap everybody you talk to from the phone to the net, however if you’re talking to friends, family or clients regularly, you should consider talking over a free service such as MSN or Skype.

It’s a fact for the majority of people living in a recession: You’re going to have to cut the cost of your luxuries. Whether it’s regular unleaded petrol instead of performance, ‘No Frills’ products or cutting out your weekly lottery tickets, Saving a sum of money for a rainy day is never a bad option regardless of the state of the economy.
With a direct debit each month, even a small amount each month will soon build up to a healthy sum. Given that interest rates have gone up on loans this has also meant that interest rates for savings accounts have gone up, take advantage of this by opening an account.

You may be paying well over the odds in interest on your credit card/loan. Look at what credit cards are available, you can find a credit card with 0% interest on balance transfers for competitive period, for instance, St George who offer 0% interest on balance transfers credit cards for 6 months, and 11.89% on anything else you spend with their Vertigo credit card.

Protect yourself from inflation by keeping your funds in a high interest savings
account: Its possible to lose money in a savings account due to the interest rate
paid being close to the rate of inflation. You are taxed on the interest you earn,
so a 5% interest rate against the 4.5 % inflation rate (with taxes in mind) will
result in your money losing value. There are plenty of good savings accounts out
there that pay well above the inflation rate, such as the BankWest ‘Telenet Saver’ and the St George ‘Dragon Direct’ accounts at 8.10%.
Have your salary paid into a high interest instant access savings account - this
will allow you to earn interest on your money without even noticing. This may not be
suitable for everyone, as high interest savings accounts often have penalties such as no interest accumulation for any month a withdrawal is made. Otherwise, it is a great way of earning a high level of interest on your salary as soon as it is in your possession.

New credit seems like the last plausible solution in a credit crunch, however with responsible repayments and fierce financial competition between providers, it is still very possibly to pay minimal to nil on your balance and repayments.

'Copyright 2003 Youth 2 Youth'

Disclaimer: This article is for your information, but it may not apply to or be suitable for your situation, so seek professional advice. Youth 2 Youth cannot be held liable for anything resulting from how you use the information provided in this article.