Credit Hangover – MoneySmart Rookie
– Delicious. Best cake ever. I swear. Oh, my God. I gotta go.
I didn’t realise how late it was. Are you gonna leave now? Yeah. Sorry.
Can you fix up the bill? – Yep. OK. Sure.
– Iíll get the next one. Bye. Alright. That’s fine. See ya. How would you like to
pay for that today? Uh, just by card.
Can you just put it on this for me? – Sure. No problem.
– Thanks. Look, sorry, it’s been declined. – What?
– I tried three times. (PHONE BEEPS)
Oh, sorry. Maxed out your credit card? Staying on top of your finances can help you avoid some
embarrassing rookie errors like this one. Credit is borrowed money that you
have to pay back with extra costs, like interest, fees
and charges to use the credit. So whether you’re buying
a car or a meal, here’s how to avoid some of those
rookie errors with credit. I’ve got a debit card because I wanted to buy things
online for Christmas presents, eBay. And it was just easier to do that. If something happens overseas
and I run out of money or something horrible happens,
Iíve got that money there. That’s the reason I got it – so I could buy more
and more things online. Um, probably the dumbest choice
Iíve ever made. I just spend what I earn. But, um, no, I feel really bad about
not budgeting, and I need to. I’m quite impulsive – if I’ve got
that credit card with 1,000 bucks or whatever it is in my pocket, I’m more inclined to go
and just buy something. Credit can cost you big time. Say you max your credit card
to $5,000, and the interest is 20%. So you decide to stop using the card and just make the minimum
repayments every month to pay off the balance. How long do you think it would take
to pay off that $5,000? Incredibly,
it would take over 45 years. That’s because you’re not just
paying off the $5,000 – you’re also paying off the interest
on the $5,000 you borrowed. So how do you
stay in control of your credit? Well, if you’d been through all this
before, you’d know what to do, right? So, Chloe, meet older
and wiser Chloe. Whoa! Hi. Good news. I’m engaged. The bad news is I’m $20,000 in debt. What? 20 grand? How did that happen? Well,
first I borrowed money for a car. Then I started
applying for credit cards and I just spent it
like it was free money. I even put my 21st on the card. Was it good? Oh, no, wait.
Donít tell me. What are you going to do about
all that money that you owe? Well… That’s when things got worse. You might not realise this,
but even your mobile phone and internet companies can charge
you if you’re late or miss payments. They might even give you a bad
credit record. So, what’s a credit record? Well, it’s a record about you,
all your credit applications and missed payments
if you’re a bad repayer. It’s pretty scary, so it’s important
to always pay your bills on time. I had so many cards
and I missed a few repayments. Turns out it all
goes on my credit record. I can’t even get a loan
to buy a house now. The banks rejected me
because of my bad credit record. And because Iím still
paying off my credit cards, I have even less money
to live on now. So what are you going to do? Well, I met with a financial
counsellor. You know, it was really good to talk
to someone who didnít judge me. And it was free. It was good. You know, like,
she helped me set up a budget and I’m slowly paying it off
bit by bit. So is there anything I can do to help? Well… You know I tend to act impulsively, so let’s make a deal to always
wait before spending. How about this – say,
for every 100 bucks, let’s wait a day. So if you want something that’s
$500, you wait five days. Deal? Yeah. Deal. I’ve always been about EFTPOS.
I’m never really about credit. I don’t like the idea
of having to pay for it later. I put a third of everything
I earn in the week to just spendings. So, just, like, groceries,
things along those lines. Everything else,
sort of, goes into a savings account and that savings account is sort of
almost like itís, like, a locked safe. I’ve fallen behind on payments
before because I havenít been keeping up
with whatís going on and not paying attention to bills. Not looking at my accounts. And it’s a good idea to try
and increase your repayments. You’d be surprised how much
you could save. Let’s say Chloe borrows $5,000
at 20% and repays $100 a month. She’ll pay almost $20,000 in interest on top of the $5,000
she already owes. But if she can pay back $250 per
month instead of $100, She’ll save over $18,000. I know what I’d choose. Credit can get you that cool car,
a dream holiday, or even your first home. But if you’re not careful, too much
credit can also get you into trouble. To find out more about credit
and how it might work for you, or for more on
all kinds of money issues, search for MoneySmart Rookie.