Cut up your credit card and avoid financial stress

Cut out the stress: If you cannot pay your credit card in full each month you are not living within your means.
Cut out the stress: If you cannot pay your credit card in full each month you are not living within your means.

Despite interest rates being at all-time lows, new studies show that almost 50 per cent of Australians are financially stressed and unable to pay their bills as they come in. Financial stress can affect every aspect of your life, and will only get worse as we approach the Christmas period, when overspending is rife.

So it is timely that I have just released a new version of Making Money Made Simple. It's been a bestseller for over 30 years, but time passes, and information that was relevant 30 years ago is past its use-by date today. Back then there were no phone apps, AfterPay or Sexually Transmitted Debt.

I have also realised that information by itself is only useful to a minority - most people also need an action plan. This is why the new edition is based around a plan to get out of trouble and get yourself on a sound financial footing.

In particular, I focus on two key points that will almost guarantee financial success for anybody. The first is to stop using credit cards and switch to a debit card. Credit cards are like warm salted cashews: once you get the taste you just keep going. Let's face it, most people get into financial strife by living beyond their means, which means most people use their credit card just to get by.

The great feature of a debit card is that you are using money you already have in your account - it's impossible to overspend.

Think about it: if you cannot pay your credit card in full each month you are not living within your means, and you are paying unnecessary interest, probably at around 20 per cent, on the outstanding balance. Even the minimum payment comes out of future earnings, which makes living within your means more difficult. You then rack up more debt on the credit card, and you find yourself on the debt treadmill. Once you're on that road it's hard to get off it, but I show you how in Making Money Made Simple.

Some people argue that they use credit cards to get points. Great - if you are paying your card off in full every month - but you are one of a small minority. If you are not, remind yourself the value of points is falling continually, and the only effective way to use them is for flights. But flights can be hard to get, especially when the holiday season comes around.

So, the first key is to get rid of the credit card - the other is to get some sort of financial buddy. It needs to be someone you relate well to, who shares a common goal to be financially successful, and has similar values. This idea has a long pedigree: as the "mastermind group" it is one of the essential steps to success in Think and Grow Rich. For many people their financial buddy is their partner, but it could be a workmate, family member or friend.

Once you free yourself from the tyranny of the credit card and start having regular goal-setting meetings with your financial buddy, you'll be amazed how quickly you will start to speed down the road to financial success.

Remember, nearly 50 per cent of Australians suffer stress because of financial problems. You don't need to be among them.

  • Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au