Here at Iris Lillian we’re all about education and giving you the information you need to be happy, healthy, and successful across all areas of your life.
So we’re excited to introduce the first in a series of pieces to help you get your sh*t together when it comes to the dollars and cents, planning for your retirement, how to invest your hard-earned cash and more. Because we all know a man is not a financial plan, but how many of us take active steps towards making our money matter? Our (financial) future is in our own hands.
Why It’s Time To Ditch Your Credit Card & Focus On Your Financial Future
Almost all of us have a credit card or three in our wallet. We might claim to have them for emergencies (hello, whatever happened to a savings account?), or because we earn frequent flyer points (really?) or perhaps we claim we need it for when we just want to buy that little bit extra. But those ‘because I deserve it’ purchases are racking up a whole lot of stress. There are more than 16 billion cards in circulation in Australia alone, with a debt of more than $33 billion. That’s a lot of spending the banks’ money.
But not everyone is on board. There is a whole team of Australia-based financial advisers who, in what might seem a radical move, have said no to excessive spending, put themselves on budgets and cut up their cards.
The gang is headed by Sarah Riegelhuth, award-winning financial planner, author and CEO of advice firm Wealth Enhancers. She says having your own cash is ‘way sexier’ than relying on credit, and that we get sucked in by the slick marketing. So what can we learn from this financial guru? We caught up with Sarah while she was on holidays in Budapest, a trip she paid for without going into debt.
Do you own a credit card? If not, why not?
Nope! I prefer to have and use my own money rather than use expensive bank credit. With all cards basically being Visa debit, or MasterCard debit these days, there’s no need for a credit card at all. The old excuse was it was required to purchase things online but that’s just no longer the case. I often hear of people hanging on to their credit cards in case of an emergency. I choose instead to have an emergency fund (equivalent to about three months of after tax-income) set aside in a bank account that I can dip into if an emergency arises. I know it’s not easy for everyone to save money and have surplus cash sitting in bank accounts, but we all have to start somewhere and saving for emergencies and other expenses is a far better way of going about it than using credit cards.
Have you ever owned a credit card?
Yes, and I got myself very quickly into thousands of dollars of debt. I was 18 years old and it took me years to pay off and caused a lot of financial stress and pressure. None of it was spent on ’emergencies’, it was all just lifestyle expenses that I couldn’t afford but wanted anyway. Once I got out of debt, I cancelled all my credit cards, saved money, and have never owned one since.
I hit rock bottom and realised the stress I was feeling just couldn’t go on, I faced the fact that if I kept just spending on my credit cards, the banks would offer me more and more credit and I’d end up further in debt.
How did you get yourself out of any previous credit card debt? How hard was it?
I hit rock bottom and realised the stress I was feeling just couldn’t go on, I faced the fact that if I kept just spending on my credit cards, the banks would offer me more and more credit and I’d end up further in debt. I cut up all of the cards I had, and did a budget. I cut out anything that wasn’t required, and used as much of my surplus as physically possible to pay off the debt. It took me several years and in that time I sold my car, and got a second job. I was committed to changing my financial future and doing what it took. It wasn’t easy living like that, but it was a few years of sacrifice in my early twenties in return for a financially abundant future. I learnt to live a modest lifestyle and I still carry that forward in my life today. I enjoy traveling, however I’m not extravagant and even still stay in hostels from time to time, and regularly share a hotel room with friends or whatever. There’s no need to waste money.
Why don’t we learn about credit cards at school?
That’s a great question! Rather than continuing to complain about that (something I did for years), I decided to solve the problem instead. Earlier this year we launched a completely free 4 week personal finance course, that teaches us everything we should have been taught at school about managing our personal finances and creating a basic financial plan for our future.
How much does this whole issue come back to spending habits?
Everything comes back to spending habits. The easiest exercise to resolve this is to spend a week being really intentional with your spending. Before every purchase ask yourself ‘am I truly receiving value in return for the cost of the purchase’. Value is different for all of us, however the key is cutting out the wasted purchases, the things you don’t really value.
Before every purchase ask yourself ‘am I truly receiving value in return for the cost of the purchase’.
If people out there have multiple cards, what’s the single best thing they can do right now to start to get a better handle on their debt?
Cut them all up, and focus on paying down the card with the highest rate of interest first. Ensure you make the minimum repayment on all of your cards to avoid any penalties, however, all surplus repayments should be directed to the card with the highest interest. Once that card has been paid off, direct all surplus onto the next highest interest rate card.
Cut them all up, and focus on paying down the card with the highest rate of interest first.
You could also look to use a low interest of no interest balance transfer and use the grace period (usually 12 months but be sure to check) to pay down as much of the debt as possible.
What’s worse? Personal loan debt or credit card debt?
Usually credit card debt is at a higher rate of interest and has been accumulated through a long series of lifestyle related purchases. Depending on how the personal loan was acquired, perhaps you have an asset (like a business or a car) that you used the loan to fund. You may be able to sell that asset to at least pay back some of the loan. If the personal loan has been put in place to consolidate a bunch of credit card debt, this may make your payments more manageable, however it’s super important to ensure your credit cards have all been cancelled so you have no risk of getting into further debt. Basically any debt that isn’t used to buy an investment or asset that goes up in value, is bad debt!
Are there any trends in credit card usage at the moment? As we grow older we tend to get more savvy with credit cards, but are people in their early 20s still diving into debt via plastic?
Young adults are always going to be hot targets for credit card companies. When we’re 18 years old we have our whole lives ahead of us. Plenty of time for them to recover all the debt we accrue, and hefty interest along the way. We’re also the least financially educated we’ll ever be thanks to a lack of financial literacy in schools, so we’re at our most vulnerable to just spend the money not fully grasping that it’s not ours and it will have to be paid back.
In all seriousness, if people out there feel they are in a scary place with no way out, what are some of the first and simplest things to do?
Talk to a professional. A financial adviser, a counsellor or even a coach is a great place to start. There’s always a way out, and you’re never alone so don’t try to tackle it all on your own. A big part of the problem for people getting out of debt is the shame they feel, this shame is only going to keep you in the place you’re in. Let it go, know that many, many, many of us have been right there where you are and managed to get out of it. Get help, and commit to making changes to positively impact your future.
What if your partner doesn’t know about your credit card debt? How can you broach this conversation?
If you’re not sharing money, and are not living together or married, then it’s really up to you and your unique relationship as to whether or not you discuss your financial situation. However money is energetically a pretty big part of our lives and if it’s something you’re hiding from your partner, that’s likely not healthy either. If you are living together, or married, it’s important you’re open about money in your relationship as your financial situations can impact each other especially if you were to separate. If you’re considered de facto (or are married) you’re potentially liable for each others debt. It’s unfair to be putting someone in that situation against their knowledge. These things aren’t easy to talk about, however talking about debt is the first step to getting out of it.
If you are living together, or married, it’s important you’re open about money in your relationship as your financial situations can impact each other especially if you were to separate.
Let your partner know you’d like to discuss your personal financial situation with them openly, and set aside some time to do it when you have no other distractions. Let them know you’re feeling vulnerable about it, and that it’s not easy for you to talk about it. Hopefully your partner will honour your request and hold the space for you to open up about your debt. Let them know what you’re planning to do about it, and how they can support you.
Why do you think credit cards are still seen as prestigious – wouldn’t it be better if we could just use our own cash? (Seriously!)
Marketing! It’s all marketing. Platinum this, gold that, titanium whatever. It’s all just fancy ways of ‘spending someone else’s money because you don’t have your own’. Don’t buy it. Save your own money, spend your own cash. That’s way sexier.
How can people change their spending habits? What’s the psychology behind it – whether we are addicted to expensive skincare, or truly believe we need new Lululemon every month, how do we ‘get off the train’?
Do a budget and really get across where your money is going, and how much you’re spending where. Looking at in a lump sum over the whole year is a pretty good reality check as top whether or not your really are addicted to something, and can’t live without it.
Is this advice especially relevant for women? If so, why?
I don’t think so, men and women (especially Millennial men and women) are not as different as we think when its comes to money, or many other things for that matter.
I know many of our readers (sorry readers) will read this and think ‘oh, yep I have a credit card but this doesn’t apply to me’. What would you say to them? Because I suspect this does apply! What kind of truthbomb can you drop?
Yes it does. Cut it up.
If myself, the entire Wealth Enhancers team and all of our members don’t need or use credit cards, you don’t need one either!