Did you know that for every $5,000 you have on your credit card, your lending capacity will decrease by approximately $20,000?
This is the reality of the lending environment. Every dollar of debt, will decrease the amount of money you are allowed to borrow.
It is a policy created to reduce the risk to banks, more than to punish people with bad spending habits. Additionally, you don’t even have to owe that money on your credit card, it just has to be available to you as the credit ‘limit’.
So how do you get around this borrowing restriction? Well, one way is to cut up your credit card (we prefer this way), but if that is not possible, you must decrease your limit as low as possible.
Here are some tips on how to decrease your credit card debt:
1. Reduce your credit limit. Do you really need $20,000 available on your card ‘just in case’?
2. Increase your buffer savings. A buffer works like an emergency fund. Invest the buffer funds wisely, so you can earn interest, while it sits there in an account (instead of charging you fees for existing).
3. Have adequate insurance. Income protection insurance will give you piece of mind in case you injure yourself at work. It is better to protect your income with insurance, rather than relying on debt to get you out of trouble.
4. Stop spending! If you have to use your credit card to purchase something, you don’t have the money to purchase it. Either save for what you want or sell something. Better spending habits, will reduce your reliance on debt.
5. Change your mindset. Many people use their credit card for everyday expenses then put their wage onto the card to pay the balance. This is to make paying bills easier, but it might also be related to points programmes. This is just a habit or mindset which can be changed.
These days it is not only your credit card debt that will get you into trouble when it comes to borrowing money to purchase property.
The lending criteria has become quite selective. Not only do you need to consider your other loans and your credit score, but you also need to consider what you spend your money on.
If you are planning to borrowing the maximum amount with the least amount of deposit, be prepared to have your bank and credit card statements assessed. They will reveal whether you like to shop online or whether you like to go to the pub on Sundays.
Again, this kind of assessment is made to reduce the risk to the bank and not punish you for enjoying your Sunday drinking sessions. So, if you are planning on purchasing a property in the next 6-12 months, you will need to monitor your own spending habits and lifestyle choices. You don’t necessarily have to give anything up, you just have to make sure your bank and credit card statements don’t’ give you away.
Do you need assistance setting your budget or getting your savings record back on track? Our advisors at JR Prosperity are experienced at helping clients to get their finances sorted, in preparation for their first property purchase. Contact us today on 1300 522 562.