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Fast loans are not your friend · She's On The Money

0:00
Speaker 1: She's on the Money.
0:02
Speaker 2: She's on the Money.
0:20
Speaker 1: Hello and welcome to She's on the Money, the podcast
0:23
Speaker 1: for millennials who want financial freedom. I'm one of your
0:26
Speaker 1: co hosts, Annabel Lee. I'm a law student, a millennial,
0:29
Speaker 1: and someone who is on a desperate quest to get
0:31
Speaker 1: better at all things money. To do that, each week,
0:34
Speaker 1: I enlist the help of my friend and money expert
0:36
Speaker 1: Victoria Divine. Welcome Victoria, Thank you as always, Victoria. Let's
0:41
Speaker 1: share some of our favorite money wins from the week.
0:44
Speaker 1: I'll go first with Jess. She said huge money win
0:47
Speaker 1: with a little party emoji. I officially paid off my
0:50
Speaker 1: personal loan today. My husband and I are about to
0:53
Speaker 1: refinance our home loan to start building on our block
0:55
Speaker 1: of land, so we've been budgeting hard to pay off
0:58
Speaker 1: our existing debts. Two months ago, we paid off our
1:00
Speaker 1: credit card debt, and today we've paid off my personal loan.
1:03
Speaker 1: Managed to avoid any fees for paying it off early, too,
1:06
Speaker 1: so I'm feeling pretty good. Now we can use the
1:08
Speaker 1: money we've been using to clear these debts to save
1:10
Speaker 1: the furniture for a new home.
1:12
Speaker 3: How great is that.
1:13
Speaker 1: I love a good furniture shop as well.
1:15
Speaker 3: Oh same, but I do it often. I actually love
1:17
Speaker 3: the part where she paid off her debt all that too, Yeah,
1:19
Speaker 3: furniture good, paying off debt better. So I've got one
1:22
Speaker 3: as well. Actually, this one's from Eleanor. She said, money win.
1:26
Speaker 3: I recently learned that even if you only use your
1:28
Speaker 3: my key Monday to Friday, a twenty eight day pass
1:31
Speaker 3: brings down your daily spend from eight dollars eighty to
1:34
Speaker 3: five dollars thirty a day. I used my tax return
1:37
Speaker 3: to buy a twenty eight day my Key pass for
1:40
Speaker 3: one hundred and forty eight dollars forty, which saves me
1:43
Speaker 3: a total of twenty eight dollars eighty a month. I'm
1:46
Speaker 3: now transferring seventy two dollars forty every fortnight when I
1:49
Speaker 3: get paid into a savings account, so I can continue
1:52
Speaker 3: to buy a twenty eight day pass every month. Twenty
1:55
Speaker 3: eight dollars eighty savings for twelve months equals a total
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Speaker 3: of three hundred and forty five dollars sixty. Now that's
2:01
Speaker 3: a nice little saving.
2:02
Speaker 1: That's a big save.
2:03
Speaker 3: That's a great saving.
2:04
Speaker 1: Money is a bloody expensive.
2:06
Speaker 3: They are really expensive. But I also think this is
2:09
Speaker 3: really applicable to everybody. Whilst Mikey is Melbourne specific. I
2:12
Speaker 3: think that's really applicable to everybody who catches public transport
2:16
Speaker 3: in Australia because I'm sure that every other you know,
2:19
Speaker 3: transportation option has an option to buy a pass and
2:23
Speaker 3: I think that you know everyone should maybe have a
2:25
Speaker 3: look at it.
2:25
Speaker 1: And if you're a Uni student or like a full
2:26
Speaker 1: time worker, this is like a really helpful tip. Yes.
2:29
Speaker 3: And also to add to that, the comments in this
2:31
Speaker 3: said that if you catch public transport and you touch
2:34
Speaker 3: on and touch off before seven am, the trip is free.
2:37
Speaker 1: What hells sad for these people that have to catch
2:40
Speaker 1: public transport before seven am?
2:42
Speaker 3: How good is that. I've got a girl in the
2:43
Speaker 3: office and she comes in quite early because she's an
2:45
Speaker 3: early bird, but she gets free Mikey in the morning
2:48
Speaker 3: and then only pays for it at night. Wow.
2:50
Speaker 1: Yeah, brilliant Victoria. Today on the show, we're going deep
2:52
Speaker 1: on the thing that may strike the most dreading you,
2:55
Speaker 1: personal loans.
2:56
Speaker 3: Well it does.
2:57
Speaker 1: But before we do that, it's time for us to
2:59
Speaker 1: share money win or a money confession for the week.
3:02
Speaker 2: What you got?
3:02
Speaker 3: Here's me first again? All right, I have a money win,
3:06
Speaker 3: which is good because I think I've had a series
3:08
Speaker 3: of confessions. So my money win is that three days
3:12
Speaker 3: this week I have brought my own lunch to work
3:15
Speaker 3: and it's been delicious. And it's been the same thing.
3:17
Speaker 3: But that's okay, what.
3:18
Speaker 1: Has it been. I've actually I saw you in the
3:19
Speaker 1: Facebook group post your like tupperware meals.
3:24
Speaker 3: Oh yes, those were my breakfast.
3:25
Speaker 1: I looked delicious.
3:26
Speaker 3: Yeah, that's like a birch and musley with yogurt that
3:29
Speaker 3: I really yeah. Look Sunday I've decided is my day
3:33
Speaker 3: to start planning my meals, and so in the mornings
3:35
Speaker 3: I've been making birch and musley with yoga and frozen berries,
3:38
Speaker 3: which I really like. But this week I've been doing
3:40
Speaker 3: like a little I guess you could say party platter
3:43
Speaker 3: of like carrots and celery and some cucumber and some
3:47
Speaker 3: dip and some cheese. I really liked having that at
3:49
Speaker 3: work because it's really easy to prepare all at one
3:51
Speaker 3: time and then just you know, grab a handful of
3:53
Speaker 3: carrots and grab some biscuits and pop it on a
3:55
Speaker 3: plate at work, so I don't actually have to make
3:57
Speaker 3: lunch every day or every night after work.
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Speaker 1: I feel like it's good money saver, but it's also
4:01
Speaker 1: a good way to keep healthy. You said celery, you
4:03
Speaker 1: said carrots, that's all I need to be pay Yeah.
4:05
Speaker 3: Look there's some cheese in there, some dip, and some biscuits,
4:07
Speaker 3: so it's not all super healthy, but I think that
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Speaker 3: it's really good because it's saved a heap of time.
4:13
Speaker 3: But it's also been really delicious. What have you done
4:15
Speaker 3: this week?
4:16
Speaker 1: I've got a money win. Yeah, also food related and
4:19
Speaker 1: also brunch related. I promise this for the last time.
4:21
Speaker 1: I'm gonna mention brunch.
4:22
Speaker 3: No, I think I've done it too many times, brunch.
4:24
Speaker 1: Every time I downloaded the app eat Club after so
4:28
Speaker 1: many of my friends were saying, you need to download
4:29
Speaker 1: because we always got for a brunch. And if you
4:32
Speaker 1: go on the app, it tells you all of the
4:34
Speaker 1: cafes in your area that will give you I think
4:36
Speaker 1: thirty percent off.
4:37
Speaker 3: You sent this to me.
4:38
Speaker 1: It's awesome.
4:39
Speaker 3: I think it's fifty percent off.
4:41
Speaker 1: Sometimes it like it varies, but it's a really good deal.
4:44
Speaker 3: Yeah, so what what's the deal? It's like you book
4:46
Speaker 3: a table for ten dollars and then you get fifty
4:49
Speaker 3: percent off your bill.
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Speaker 1: Yeah, so you've got to go and book within like
4:53
Speaker 1: a within two hours, I think, or something like that. Yeah,
4:55
Speaker 1: it's gonna be pretty last minute, but if you're planning
4:57
Speaker 1: to go a brunch on a Sunday, you may as
4:59
Speaker 1: well for the last minute and you know, headbare and okay, yeah,
5:03
Speaker 1: very cool, Okay, Victoria. First things first, how do you
5:07
Speaker 1: define a personal loan? We've already touched on other loans
5:10
Speaker 1: in this podcast, like help debt, but how do personal
5:13
Speaker 1: loans differ?
5:14
Speaker 3: Can we just preface this by reminding everybody how I
5:17
Speaker 3: said that I believe in the three different types of debts.
5:20
Speaker 3: So there's good debt, there's okay debt, and there's bad debt. Yes,
5:23
Speaker 3: and we said that help debt and mortgages were okay debt,
5:26
Speaker 3: and good debt was investment debt and you know, things
5:29
Speaker 3: that help build your wealth. But then we've got personal
5:33
Speaker 3: loans and the big red flag is bad debt and
5:36
Speaker 3: that's yeah, that's personal debt. So that's where we're at today. Essentially,
5:40
Speaker 3: a personal loan allows you to borrow money, usually for
5:43
Speaker 3: a particular purpose or need, and they are able to
5:47
Speaker 3: be used to consolidate debt. So you could take a
5:49
Speaker 3: number of different loans or credit cards and put it
5:51
Speaker 3: into one, so your charged interest on the amount of
5:54
Speaker 3: the loan, and then you repay the loan amount plus
5:57
Speaker 3: the interest over the term of the loans. That could
6:00
Speaker 3: be for a personal loan anywhere between five and ten issues.
6:06
Speaker 1: In the last twelve months in Australia, six hundred and
6:08
Speaker 1: nineteen thousand personal loans have been processed, advancing a total
6:11
Speaker 1: of four hundred and seventy six million dollars, and they're
6:14
Speaker 1: massive amongst people our own age. According to find a
6:17
Speaker 1: forty six percent of millennials turned to personal loans, with
6:20
Speaker 1: cars and holidays as the main reasons behind the splurging.
6:23
Speaker 1: What's your take on so many young people turning to
6:26
Speaker 1: personal loans to finance their lives.
6:28
Speaker 3: Look at you and your statistics. I'm so impressed. Thank you,
6:31
Speaker 3: no problem. So I think that it's a really interesting
6:34
Speaker 3: space because it's one of the first times in history
6:37
Speaker 3: where we've actually had such access to personal loans. Previously,
6:41
Speaker 3: they've either been really hard to get or the criteria
6:44
Speaker 3: of them maybe hasn't been as easy to meet. Please
6:47
Speaker 3: don't get me wrong. Over the last ten to fifteen years,
6:49
Speaker 3: they've been incredibly easy to get hold of because all
6:52
Speaker 3: you have to do is put your hand up and
6:53
Speaker 3: say I earn an income is a couple of statements
6:56
Speaker 3: of my salary, and hego, well done. But I think
7:01
Speaker 3: it's something that because it's more accessible, and because we
7:03
Speaker 3: live in this world of instant gratification, and because we
7:06
Speaker 3: often don't understand, you know, basic financial literacy, if I'm honest,
7:13
Speaker 3: they're becoming a big issue.
7:14
Speaker 1: So one term I came across in a lot of
7:16
Speaker 1: my research is payday loans or small amount credit contracts.
7:20
Speaker 1: Can you explore what these are and why they're so popular?
7:23
Speaker 3: So a payday loan is actually a really high cost
7:26
Speaker 3: short term loan. So payday loans include really small loans,
7:30
Speaker 3: so they're usually up to two or three thousand dollars.
7:33
Speaker 3: Often the catch there is they've got an interest rate.
7:36
Speaker 3: It's usually pretty high. But if you do not pay
7:39
Speaker 3: it back within you know, the sixteen days or twelve months,
7:42
Speaker 3: the interest on that compound significantly, so it could cost
7:45
Speaker 3: you four or six times more than.
7:48
Speaker 1: What you borrowed.
7:49
Speaker 3: So the most common is double So if you borrowed
7:52
Speaker 3: two thousand dollars, you at the end of the day
7:54
Speaker 3: could owe four thousand dollars, and that is honestly ridiculous,
7:58
Speaker 3: and it's it's more likely if you're or going out
8:00
Speaker 3: and getting these loans you need that financial help, that
8:03
Speaker 3: you're not really going to be able to pay it
8:05
Speaker 3: back within that time. Absolutely. So there are so many
8:08
Speaker 3: stories of payday lenders abusing the system, and we've just
8:12
Speaker 3: been through this Royal Commission which looked into banking, and
8:15
Speaker 3: so many people have been reprimanded for bad behavior in
8:19
Speaker 3: this area, and a number of payday loan companies have
8:22
Speaker 3: actually taken themselves out of the market and decided that
8:24
Speaker 3: that's not what they're going to do anymore. So an
8:26
Speaker 3: example of that is Nimble, So Nimble loans have decided
8:29
Speaker 3: that payday lending is not something they're willing to do anymore.
8:33
Speaker 3: Payday lending is a really interesting space because often when
8:37
Speaker 3: you are looking for a payday loan, it's because you
8:40
Speaker 3: are feeling quite desperate. It is not because you've thought
8:43
Speaker 3: about this over the long term and you're deciding to
8:46
Speaker 3: go on a holiday. It's often in the moment spending
8:49
Speaker 3: and you're borrowing a sum of money that you couldn't
8:51
Speaker 3: otherwise afford to be spending, and it puts you in
8:53
Speaker 3: a position of disadvantage. So I think the statistics say
8:57
Speaker 3: that the number one user of payday loans a single mum,
9:00
Speaker 3: and that's not great because often in that position they
9:03
Speaker 3: don't have the income to support themselves. But then they're
9:06
Speaker 3: also under financial stress already, so the probability of them
9:11
Speaker 3: being in a position where they're unable to pay back
9:13
Speaker 3: this payday loan is quite high, and then you know
9:16
Speaker 3: you're in all sorts of trouble after that.
9:18
Speaker 1: Yeah, because those fees don't really dissipate as a single.
9:21
Speaker 3: Mum no, no, and then they're not reasonable or you know,
9:24
Speaker 3: often not negotiable as well. They are very strict.
9:27
Speaker 1: Are there any circumstances where people will get these loans
9:30
Speaker 1: who aren't necessarily that desperate for money? Like, are there
9:33
Speaker 1: any exceptions? Do you think?
9:35
Speaker 3: I think so? But in saying that, I would never
9:37
Speaker 3: be able to justify a payday loan, not just for
9:40
Speaker 3: myself but anyone. Payday loans are something that you know,
9:44
Speaker 3: it's quick cash and at the end of the day,
9:46
Speaker 3: if you're in a position where you can pay that
9:48
Speaker 3: back in one or two weeks, then okay. But at
9:51
Speaker 3: the same time, you as an individual should have access
9:54
Speaker 3: to things that enable you to purchase those things, or
9:57
Speaker 3: why can't you wait two weeks?
9:59
Speaker 1: So what is the difference between secure and unsecure credit?
10:03
Speaker 3: So, and let's talk about this in loan terms. When
10:06
Speaker 3: a loan is unsecured, it means the loan is not
10:09
Speaker 3: secured against any of the borrower's assets. So you just
10:12
Speaker 3: get given a loan and there's nothing I guess holding
10:15
Speaker 3: it there for example, consolidation of previous credit card debts
10:19
Speaker 3: or a holiday or something. Essentially, you have a debt
10:22
Speaker 3: with no asset that that bank or that company that
10:25
Speaker 3: you've lent money from can sell down to pay that
10:27
Speaker 3: debt back. It usually has a higher interest rate on that.
10:31
Speaker 3: So you know, a personal loan might be anywhere from
10:34
Speaker 3: seven to ten percent, but an unsecured loan, an unsecured
10:38
Speaker 3: personal loan will be anywhere between you know, fifteen to
10:41
Speaker 3: twenty two percent. And then a secured loan is a
10:44
Speaker 3: loan that is secured against an asset. So if you,
10:47
Speaker 3: as the borrower, fail to make repayments, the lender then
10:50
Speaker 3: gets some of those assets that you've used to secure
10:53
Speaker 3: the loan to cover the outstanding loan amount. So an
10:56
Speaker 3: example of that could be a car loan or a
10:58
Speaker 3: home loan, where you know, if you're desperate and unable
11:01
Speaker 3: to get out of the debt, the person who you
11:04
Speaker 3: borrowed money from, or the bank you borrowed money from,
11:06
Speaker 3: will take those assets and sell them on your behalf
11:09
Speaker 3: to recoup some of their costs.
11:11
Speaker 1: This might be a bit of a stupid question, but
11:13
Speaker 1: what if you have unsecure credit and you're unable to
11:15
Speaker 1: pay it back, Like, do you go to jail so
11:18
Speaker 1: you could?
11:18
Speaker 3: So that's essentially fraud. You're not paying back something that
11:21
Speaker 3: you owe. I'm not saying that that happens in every situation,
11:25
Speaker 3: but that's something you need to talk to the lender about.
11:28
Speaker 3: You also need to probably talk about getting some financial
11:31
Speaker 3: counseling and working with someone to work out what's going
11:34
Speaker 3: on there. I would never recommend it, but in some situations,
11:39
Speaker 3: filing for bankruptcy is something that helps people in that situation.
11:43
Speaker 3: But bankruptcy stays on your record for a really long time.
11:47
Speaker 3: It hinders you being able to invest, it hinders you
11:49
Speaker 3: being able to buy home, start businesses, do a whole
11:52
Speaker 3: heap of things, so it's really a last resort. But
11:54
Speaker 3: at the end of the day, if someone is in
11:56
Speaker 3: so much debt and they're unable to pay it back,
11:58
Speaker 3: and it's hindering their mental health and their will being
12:00
Speaker 3: and you know, their life in general. Filing for bankruptcy
12:03
Speaker 3: can be a really good option in that situation. I'm
12:07
Speaker 3: not saying getting a whole heap of debt and then
12:08
Speaker 3: file for bankruptcy though, because it is a really big
12:11
Speaker 3: step and it is something that really does have a
12:13
Speaker 3: lot of negative consequences. But there is a way. It's
12:18
Speaker 3: just not a good outcome and it's not a fun
12:20
Speaker 3: one for anyone.
12:20
Speaker 1: So you've got to be really careful with these personal
12:22
Speaker 1: loans and stuff.
12:23
Speaker 3: Absolutely, I don't think that, you know, I think it's
12:26
Speaker 3: a really privileged thing for me to say that. I
12:29
Speaker 3: don't think that personal loans are ever justified, but in
12:33
Speaker 3: some circumstances they are. But at the end of the day,
12:35
Speaker 3: if you're getting a personal loan for a holiday, like
12:37
Speaker 3: you really need to rethink your goals and work out
12:40
Speaker 3: why on earth you can't just wait to go on
12:42
Speaker 3: that holiday.
12:43
Speaker 1: So lots of payday lenders say they offer a quick
12:46
Speaker 1: cash lifeline and are helpful to the average Australian. Do
12:49
Speaker 1: you agree with that? Do you see quick same day
12:52
Speaker 1: loans as a good thing.
12:53
Speaker 3: Absolutely not. I think that they It's a really good
12:57
Speaker 3: marketing strategy, though, isn't It sounds very Yeah, it sounds brilliant.
13:00
Speaker 3: But I think that there are so many alternatives to
13:02
Speaker 3: payday loans that you need to consider before going, oh,
13:06
Speaker 3: my bills are due, I really need to get a
13:08
Speaker 3: loan for this. So one of them is you could
13:11
Speaker 3: be negotiating with your utility provider. So people are quite
13:14
Speaker 3: flexible at the end of the day. They just want
13:16
Speaker 3: you to be able to pay the money back. So
13:18
Speaker 3: if you can call and have a really open, honest conversation,
13:20
Speaker 3: you know, with your energy provider and say, look, I
13:22
Speaker 3: don't have the money right now. Often they have programs
13:26
Speaker 3: for people experiencing hardship and you're able to go through
13:30
Speaker 3: those routes. You could also, if you're in that situation,
13:33
Speaker 3: talk to Centlink about getting potentially a pay advancement. That's
13:36
Speaker 3: something that's available in that situation, if that's something you're utilizing.
13:41
Speaker 3: And then there are places like the Good Shepherd Microfinance
13:45
Speaker 3: who have no income loan schemes. They are called NILS
13:48
Speaker 3: loans and they are available for people within the community
13:53
Speaker 3: who need access to fast cash and aren't able to
13:56
Speaker 3: access it. So I think that there are so many
13:58
Speaker 3: different options for people who need far cash that they
14:01
Speaker 3: don't need to be relying on people who do same
14:04
Speaker 3: day pay loans because there's only negative consequences and really
14:07
Speaker 3: high interest rates associated with them.
14:09
Speaker 1: So there are absolutely options for people who feel that
14:11
Speaker 1: they need fast cash who don't want a personal loan.
14:13
Speaker 3: Yes, and if you're in a situation where you feel
14:16
Speaker 3: like that's something you need and you don't see another option,
14:19
Speaker 3: type into Google Financial counseling and your area and something
14:23
Speaker 3: will pop up and you'll be able to contact them
14:25
Speaker 3: and they'll be able to direct you in the right place.
14:28
Speaker 3: Places like Good Shepherd Microfinancing have partnerships with you know,
14:32
Speaker 3: support agencies all across Australia and you'll be able to
14:35
Speaker 3: be put in contact with the right place without getting
14:38
Speaker 3: yourself in over your head.
14:39
Speaker 1: We need to prioritize long term benefits rather than the
14:42
Speaker 1: short term fast cash.
14:43
Speaker 3: Yes, absolutely, I really.
14:45
Speaker 1: Want to finish on a quote that I think is
14:47
Speaker 1: a good way to wrap it all up. Speaking to
14:50
Speaker 1: the Australian Financial Review Consumer Action Law Center, Policy of
14:53
Speaker 1: Sir Patrick Sloyan said, If this is the only way
14:56
Speaker 1: low income and vulnerable people can access funds and be
14:59
Speaker 1: exploited in the pro that's a huge problem. Hi, there,
15:07
Speaker 1: you've called the Shees on the Money Hotline. Do you
15:10
Speaker 1: have a money problem you want help solving. Do you
15:12
Speaker 1: have a money dilemma you just want to chat about?
15:14
Speaker 1: Victoria is here to help. Each week we'll be playing
15:17
Speaker 1: your hotline questions to help make sense of the money
15:19
Speaker 1: mess you may have found yourself in. Give us a
15:21
Speaker 1: call on four three five, two nine three double eighty
15:24
Speaker 1: six and you might find yourself on the show. Hi,
15:35
Speaker 1: Victorian Annabelle, I have a really silly question, but one
15:39
Speaker 1: I don't know who else to ask. How do I
15:41
Speaker 1: check my credit rating?
15:43
Speaker 2: And what are the things I can do to make
15:44
Speaker 2: sure I have a good one?
15:47
Speaker 1: So Victoria, let's strip this back to the basics. What
15:50
Speaker 1: is a credit rating?
15:51
Speaker 3: So a credit rating is an estimate of the ability
15:54
Speaker 3: of a person or a company to fulfill their financial
15:57
Speaker 3: commitments based on previous dealings.
15:59
Speaker 1: So how do I find mine? How do I check
16:01
Speaker 1: what mine is?
16:01
Speaker 3: So you can google what's my credit rating? And there
16:03
Speaker 3: are a number of websites that will help you do
16:05
Speaker 3: that personally, I've used Equifax in the past and I
16:09
Speaker 3: find that quite reliable. You do pay for it. But
16:12
Speaker 3: I also think it's really important to note that when
16:14
Speaker 3: you are checking your credit score, it goes on your
16:17
Speaker 3: credit score, so you know, you'll have a credit report
16:20
Speaker 3: and it'll be put on that credit report that you've
16:22
Speaker 3: checked it. So it's not something I think you should
16:24
Speaker 3: be checking all the time.
16:25
Speaker 1: So why is it important to have a good credit rating.
16:28
Speaker 3: So it's a very American thing to say you need
16:31
Speaker 3: a good credit rating. Here in Australia, a credit rating
16:35
Speaker 3: or a credit score is you know, it exists. It's important.
16:39
Speaker 3: I think that people should know what's on their credit
16:41
Speaker 3: score because sometimes in you know, very dramatic cases where
16:44
Speaker 3: identity fraud has has happened. It's a good way of checking,
16:48
Speaker 3: you know, what debts you have, what's going on with
16:51
Speaker 3: your financial world. Often, you know, if I look up
16:54
Speaker 3: my credit score, it'll you know, talk about the businesses
16:56
Speaker 3: that I have it or talk about you know, the
16:58
Speaker 3: phone plans I'm on on and you know previous you know,
17:01
Speaker 3: finance dealings I've had, and it all looks quite normal.
17:05
Speaker 3: It's not something you should be checking all the time.
17:07
Speaker 3: But I do think, you know, the occasional check once
17:09
Speaker 3: every five years is fine. I don't think it's something
17:12
Speaker 3: we need to obsess over though, because a credit score
17:15
Speaker 3: is not what is used to determine your home loan.
17:18
Speaker 3: So like people in the Facebook group recently have been
17:20
Speaker 3: talking about getting credit cards to improve their credit score,
17:24
Speaker 3: whereas that's not an Australian thing, that's an American thing.
17:26
Speaker 3: You absolutely do not need to have a credit card
17:29
Speaker 3: to increase your credit score. You just need to be
17:32
Speaker 3: making good financial decisions, not defaulting on your bills, paying
17:36
Speaker 3: your bills when they come in, and making sure that
17:38
Speaker 3: you know you're not going into unnecessary debt. A credit
17:41
Speaker 3: rating is something that a bank looks at to make
17:44
Speaker 3: sure that you're someone that they want to lend money
17:46
Speaker 3: to when it comes time to do that.
17:48
Speaker 1: And what about a credit report? What is that? And
17:51
Speaker 1: why does checking my credit rating play into that?
17:54
Speaker 3: So it's much of a muchness. Your credit rating will
17:56
Speaker 3: be on your credit report, but the credit report is
17:59
Speaker 3: the long winded version of a credit rating. Credit rating
18:02
Speaker 3: is a number, and the credit report will have all
18:05
Speaker 3: of the information that got that number.
18:08
Speaker 1: Okay, so how does someone improve on a bad credit.
18:11
Speaker 3: Rating, then paying their bills on time, making sure that
18:14
Speaker 3: they are not defaulting on anything. Those things stay on
18:18
Speaker 3: your credit rating for five to seven years. So I
18:20
Speaker 3: think it's really important to make sure that you're not
18:22
Speaker 3: biting off more than you can chew. So don't take
18:24
Speaker 3: on our necessary debt, don't take on personal loans. But
18:29
Speaker 3: I really want to reiterate this point again. To improve
18:31
Speaker 3: your credit score, you just need to clean up your act.
18:34
Speaker 3: You don't need to go get a credit card, you
18:35
Speaker 3: don't need to go get a loan, you don't need
18:37
Speaker 3: to have a home loan. To prove that you're good
18:40
Speaker 3: to lend to, you just need to be consistent with
18:42
Speaker 3: what's going on. And if that means you're consistently paying
18:45
Speaker 3: your phone bill and your electricity bill and everything that
18:48
Speaker 3: you owe is always paid on time and the right amount,
18:51
Speaker 3: we are good to go.
18:52
Speaker 1: And that includes things like after pay, right, as we
18:54
Speaker 1: mentioned in the last couple episodes.
18:56
Speaker 3: Yeah, so we had an episode on after pay, and
18:59
Speaker 3: that's one of those things that will come up on
19:01
Speaker 3: your credit rating and will come up on your credit report,
19:04
Speaker 3: and I think it's really important to note so because
19:07
Speaker 3: it's on your credit report. People can see that. When
19:10
Speaker 3: you are going for a home loan, the bank will
19:12
Speaker 3: do a credit check on you and they will get
19:14
Speaker 3: this report for themselves, and they often get a far
19:17
Speaker 3: more detailed version of it than you will get personally
19:20
Speaker 3: from you know, a credit check website. On that report,
19:23
Speaker 3: if after pay is on there, I'm not saying it's negative,
19:25
Speaker 3: it will just look like a debt and it will
19:27
Speaker 3: show your borrowing capacity. On that platform, it will show
19:31
Speaker 3: the bank what type of person you are. So a
19:33
Speaker 3: bank will look at it, and it's not like they
19:35
Speaker 3: will say, no, you've got after pay, We're not lending
19:37
Speaker 3: to you, but they might reduce your capacity because of
19:40
Speaker 3: the loans that you already have or the access to
19:43
Speaker 3: credit that you have. So they will look at it
19:45
Speaker 3: and say, look, Annabelle, you've got you've got after pay.
19:48
Speaker 3: Maybe you are a bit more impulsive than we thought
19:50
Speaker 3: you were.
19:50
Speaker 1: Oh no, they're almost Yeah, they hold your secrets.
19:53
Speaker 3: But that's what after pay looks like on a credit rating.
19:56
Speaker 3: It is not, Hey, Annabelle's a bad person, We're not
20:00
Speaker 3: lending to her. She has after pay. It will just
20:02
Speaker 3: negatively impact the way that they measure it, and it
20:05
Speaker 3: will look as though maybe you're a bit more impulsive
20:08
Speaker 3: than you should be.
20:09
Speaker 1: So personal loans will affect my credit rating to.
20:11
Speaker 3: Yes, absolutely they will, because any personal loan that you have,
20:14
Speaker 3: or any credit limit that you have will reduce the
20:17
Speaker 3: ability to access money and access a home loan. So
20:21
Speaker 3: that's I guess, you know, the most common area that
20:23
Speaker 3: we talk about credit ratings in. And when we talk
20:26
Speaker 3: about it, I'm not talking about, Hey, Annabelle, you've got
20:29
Speaker 3: two thousand dollars on your credit card. I'm saying how
20:31
Speaker 3: much is your credit card limit? Because that's the amount
20:34
Speaker 3: that you won't be able to borrow money from the
20:36
Speaker 3: bank in relation to a home loan. So I don't
20:38
Speaker 3: care if you've got two thousand dollars or there's nothing
20:41
Speaker 3: on the credit card. They care that there's a four
20:43
Speaker 3: thousand dollar limit there because that's access to credit. So
20:46
Speaker 3: often when people are going for home loans and they
20:48
Speaker 3: want to increase their borrowing capacity, they will, you know,
20:51
Speaker 3: shut down credit cards, shut down after pay because that
20:55
Speaker 3: will increase the amount that the bank will lend to
20:57
Speaker 3: them because they have less access to credit.
21:05
Speaker 1: Now let's jump into our money dairy segment. Let's go
21:16
Speaker 1: today's money dary is from a woman who says she
21:18
Speaker 1: needs help when it comes to money.
21:20
Speaker 4: I'm twenty eight and love instant gratification because I find
21:26
Speaker 4: the reason why I'm so bad with money is because
21:28
Speaker 4: I'm like, oh, I like that. I'll just get it
21:31
Speaker 4: because the money's in my account, and then by the
21:33
Speaker 4: end of the month there's.
21:34
Speaker 1: No money left in my account.
21:36
Speaker 4: And then it's not like expensive things, it's I mean,
21:39
Speaker 4: it would be like a twenty dollar top and I'll
21:40
Speaker 4: be like, oh, I love that top. It's only twenty dollars.
21:43
Speaker 4: I'll get it because I can afford twenty bucks. But
21:46
Speaker 4: all the twenty dollars is that up, So it's just
21:49
Speaker 4: that and then I'll wear that top maybe twice, and
21:51
Speaker 4: then it'll go in the back.
21:52
Speaker 1: Of the wardrobe. Okay, so we know twenty eight and
21:54
Speaker 1: loves instant gratification has made some mistakes in the past.
21:57
Speaker 1: But let's hear the juicy stuff. How much does she
22:00
Speaker 1: earn and how much you're sitting in her bank account
22:02
Speaker 1: right now?
22:02
Speaker 4: I own sixty thousand dollars a year. I probably have
22:05
Speaker 4: about six hundred dollars in my savings account. I probably
22:10
Speaker 4: had if you'd ask me three months ago, I would
22:13
Speaker 4: have said, oh, I've got like three grand, but I've
22:14
Speaker 4: just come back from holiday, so spend it all. I
22:18
Speaker 4: don't mind that there's only five hundred dollars. I know
22:20
Speaker 4: I've just come back from holidays. I would prefer seeing
22:23
Speaker 4: like five six hundred dollars instead of zero. When I
22:28
Speaker 4: came back from holidays, it was zero, and that stressed
22:30
Speaker 4: me out because I don't have any emergency money. Then
22:33
Speaker 4: that's sort of my emergency fund. My long term savings
22:36
Speaker 4: does not exist, and.
22:38
Speaker 1: What exactly happens to that money after it's deposited into
22:40
Speaker 1: her account?
22:41
Speaker 4: So I get paid monthly, and when I get my
22:45
Speaker 4: pay it gets organized into three separate accounts. I have savings, spendings,
22:49
Speaker 4: and bills, so I know exactly how much I have
22:52
Speaker 4: to put away for bills, so that goes first. Then
22:55
Speaker 4: I allocate myself a little bit for the month for spending,
22:59
Speaker 4: and then the goes into savings. I pay fifteen hundred
23:02
Speaker 4: dollars in rent every month, which is a lot, but
23:05
Speaker 4: I live by myself, so you know, what can you do.
23:09
Speaker 4: I've lived by myself for four years now. When I
23:12
Speaker 4: first moved out of home, everyone was saying to me,
23:15
Speaker 4: get a HOUSEMATEE And I know that would make things
23:17
Speaker 4: a lot easier, but I mentally I lack my space.
23:21
Speaker 4: I need to be alone. I can't have someone in
23:23
Speaker 4: my space all the time. And I've seen friends go
23:25
Speaker 4: through fights and never be friends again, and I was like,
23:28
Speaker 4: I don't want that. I don't want someone impeding on
23:30
Speaker 4: my space. I also have two dogs that are quite
23:33
Speaker 4: boisterous with each other, so I don't want them to
23:35
Speaker 4: be a responsibility of someone else. So mentally and just
23:39
Speaker 4: for everything else, it was easier to be by myself,
23:42
Speaker 4: and since then I love it. I don't know if
23:46
Speaker 4: I could live with my partner he's so messy.
23:48
Speaker 1: Okay, then, So how does twenty eight and Love's instant
23:50
Speaker 1: gratification feel about investing? Does she invest? And if not, why.
23:55
Speaker 4: I do not invest. I've never invested. I'm pretty sure
23:59
Speaker 4: my dad wants in. Invested in on my behalf when
24:01
Speaker 4: I was younger, but I got a like thousand dollar
24:05
Speaker 4: phone bills, so we sold all my shares and paid
24:07
Speaker 4: off this phone bill and that was the end of that.
24:09
Speaker 4: So he managed that for me. I have not personally invested.
24:13
Speaker 1: What about debts like credit cards? And personal loans.
24:16
Speaker 4: This is where my life is very interesting. I have
24:20
Speaker 4: a Carloon, I have three credit cards. I have a
24:25
Speaker 4: small hex debt which I didn't even finish the course,
24:30
Speaker 4: so it's nothing to me. So originally my car loan
24:35
Speaker 4: was for forty thousand dollars because I had negative equity
24:38
Speaker 4: that I had to roll into it because my car
24:40
Speaker 4: broke down. I'm very lucky though, because I got a
24:42
Speaker 4: one percent inches straight on my Carloon. So after two
24:46
Speaker 4: and a half years, I've got it down to twenty
24:47
Speaker 4: thousand dollars. So and then I've got probably three grand
24:52
Speaker 4: owing on each of my three credit cards, and just
24:56
Speaker 4: checking my mic of I think I owe about five
24:59
Speaker 4: thousand dollars left on hextet or helped that. Credit cards
25:02
Speaker 4: scare me. My partner tells me, you have to get
25:05
Speaker 4: them under two grands so they're stop incurring so much interest.
25:08
Speaker 4: At the moment, I can only afford to pay off
25:11
Speaker 4: the minimum each month. So everyone always says, stop like
25:16
Speaker 4: saving and just pay off the credit cards. But I
25:19
Speaker 4: need to have that safety, and once I get that
25:21
Speaker 4: back up to one thousand dollars, maybe I'll start paying
25:24
Speaker 4: more off my credit cards. So I put my flights
25:27
Speaker 4: my holiday on one of my credit cards, and then
25:30
Speaker 4: the rest probably I think one of the credit cards
25:35
Speaker 4: I would have used the money on moving out originally,
25:40
Speaker 4: and that was four years ago and it's still only
25:44
Speaker 4: probably five hundred.
25:45
Speaker 1: Dollars paid off.
25:46
Speaker 4: But that to me was like something I needed to spend.
25:49
Speaker 4: That was buying all my furniture. So I spent about
25:52
Speaker 4: three grand on all my furniture. I was three and
25:54
Speaker 4: a half actually, and I thought, well, if I can
25:56
Speaker 4: get everything for a house with three grand, I'm all right.
25:59
Speaker 4: But the rest of it, probably over the years, has
26:03
Speaker 4: just accumulated with bits and pieces. Dinners when I haven't
26:07
Speaker 4: had any cash, just you know, or you go out
26:11
Speaker 4: to dinner with a big group of people and that
26:13
Speaker 4: no one's got cash, or some people got cash. I'll
26:15
Speaker 4: just whack it on my credit card. You'll give me
26:17
Speaker 4: a cash and then it doesn't get paid off the card.
26:19
Speaker 4: I just use the cash. So now I don't use them.
26:22
Speaker 4: So I only use one of them just to pay
26:24
Speaker 4: for my flights, and then that was it.
26:26
Speaker 3: They say at.
26:26
Speaker 4: Home, they don't even come out with me anymore. It's
26:29
Speaker 4: just so stressful as it is to have three credit cards.
26:33
Speaker 4: I think probably two of them also started with balanced transfers,
26:36
Speaker 4: you know, to get zero percent and paid off.
26:39
Speaker 2: But you know, as time goes.
26:41
Speaker 4: On, zero percent runs out and then you don't pay
26:45
Speaker 4: it off, and then the interest comes in and then.
26:47
Speaker 1: It just takes forever.
26:48
Speaker 4: So I've probably had those three credit cards for ah
26:52
Speaker 4: five six years.
26:53
Speaker 1: Does twenty eight and Love's instant gratification have any good
26:56
Speaker 1: money habits that she's especially proud of.
26:59
Speaker 4: I I don't go out to eat a lot. I
27:02
Speaker 4: don't buy coffee. I don't drink coffee. I take my
27:06
Speaker 4: lunches to work. I don't I really just don't buy food.
27:11
Speaker 4: I'll do one big weekly shot and that'll be my
27:14
Speaker 4: food for the entire week for breakfast, lunch, and dinner.
27:17
Speaker 4: If I go out for dinner, it's very rare. So
27:22
Speaker 4: I would say that's a good thing, like I am
27:24
Speaker 4: so sure, but in a way that I don't have
27:27
Speaker 4: to spend too much money on like thirty dollars dinners
27:29
Speaker 4: and things like that. I'll eat at home or something.
27:32
Speaker 4: That's probably my best money habit. It's not like a
27:35
Speaker 4: great one, but yeah, what.
27:36
Speaker 1: About her worst money habits?
27:38
Speaker 4: This is probably going to be a lot of people's
27:40
Speaker 4: worst money habit, but it was after pay that was
27:44
Speaker 4: my worst money habit. I've just shut down my after
27:47
Speaker 4: pay account after that last week's episode of the week before,
27:50
Speaker 4: because after pay was just like, oh, it's only I
27:54
Speaker 4: would see the first payment as the only payment and
27:57
Speaker 4: worry about the rest later. And that's again like a credit,
28:00
Speaker 4: you worry about it later, except with after paid actually
28:03
Speaker 4: comes out every fortnight or how many weeks, and again
28:07
Speaker 4: it goes down to that instant gratification thing where I
28:10
Speaker 4: can have it now and I don't have.
28:12
Speaker 2: To worry about paying for it now.
28:14
Speaker 1: So what's today's money diarist actually saving for? What's her
28:17
Speaker 1: big money goal?
28:19
Speaker 4: I mean, everyone says, oh, I'm saving for a house,
28:22
Speaker 4: and I that is so far off for me. I
28:25
Speaker 4: would say my big saving this goal is to save
28:27
Speaker 4: for a house. But because I don't have anything close
28:31
Speaker 4: to eighty thousand dollars to my name, that is a
28:35
Speaker 4: probably a ten fifteen year goal, and that's sad. Like
28:38
Speaker 4: I'm twenty eight and I probably won't own a home
28:40
Speaker 4: until I'm almost forty. But eventually that's my goal. I
28:44
Speaker 4: just don't put much pressure on myself for that. Because
28:47
Speaker 4: it's just I rent by myself, you know I have.
28:50
Speaker 4: If I could save that fifteen hundred dollars every month,
28:52
Speaker 4: that'd be great, but you know, made the decision to
28:55
Speaker 4: move out instead.
28:56
Speaker 1: So howard today's money diarist to rate her own relationship
28:59
Speaker 1: with money? If we force her to give herself.
29:01
Speaker 4: A grade, I would give myself probably a C only
29:06
Speaker 4: because I know that I'm good with budgeting, but when
29:10
Speaker 4: it comes to.
29:12
Speaker 1: Having something that.
29:13
Speaker 2: I want, I don't really hold back.
29:15
Speaker 4: I will find a way to get what I want,
29:18
Speaker 4: I suppose, But at the same time, I always make
29:21
Speaker 4: sure my bills are paid. Even though my bills take
29:25
Speaker 4: up probably eighty five percent of my wage, I still
29:30
Speaker 4: try and find that extra little bit.
29:32
Speaker 1: If I just.
29:32
Speaker 4: Didn't worry about that stuff, I reckon i'd be all right.
29:36
Speaker 4: I could be a probably a B. But I am
29:38
Speaker 4: sometimes just that little bit too silly with money.
29:41
Speaker 1: So what's your first impression on that?
29:43
Speaker 3: So the first thought I had was that she just
29:46
Speaker 3: needs a total attitude overhaul, like some of the things
29:49
Speaker 3: that she was saying. And I feel like this is
29:51
Speaker 3: a really blunt one from me, and I'm usually quite
29:54
Speaker 3: celebratory of everybody, you know, celebrating their money stories whilst
29:58
Speaker 3: I am, and she sounded like, you know, she had
30:00
Speaker 3: some really good goals and she had had a really
30:02
Speaker 3: good understanding of her values. Eighteen thousand dollars a year
30:06
Speaker 3: in rent, so fifteen hundred dollars a month is too
30:09
Speaker 3: much for her, given she's in ten thousand dollars worth
30:12
Speaker 3: of credit card debt and has a forty thousand dollar
30:14
Speaker 3: car loan. The thing with money and saving and investing
30:19
Speaker 3: is sometimes it takes sacrifice, and it doesn't sound like
30:22
Speaker 3: she's doing any of this, and I think it's now
30:24
Speaker 3: time to change. So this should be a little bit
30:26
Speaker 3: of a wake up call to say, hey, maybe you
30:29
Speaker 3: should be having a listen to your friends or to
30:32
Speaker 3: your family. Maybe you should get a house mate. Maybe
30:34
Speaker 3: you should work out a way to be paying less
30:36
Speaker 3: in rent and more on your credit cards. I think
30:39
Speaker 3: something for me that really jumped out was she's had
30:42
Speaker 3: these credit cards for years, yet she's still justifying holidays
30:46
Speaker 3: and spending three thousand dollars on flights. And you know,
30:49
Speaker 3: she said she put that holiday on a credit card,
30:51
Speaker 3: but she's still spent the three thousand dollars in her
30:54
Speaker 3: savings account. So to me, that didn't make a lot
30:57
Speaker 3: of sense. And at the end of the day, like
30:59
Speaker 3: I'll say it again, saving money and being in a
31:02
Speaker 3: good financial position takes sacrifice, and that sacrifice needs to
31:06
Speaker 3: be made by you. You can't just sit around and
31:08
Speaker 3: wait and have a credit card that you've had for
31:11
Speaker 3: five years on balance transfer. Balance transfers, whilst fantastic if
31:15
Speaker 3: you're going to smash that loan down and get rid
31:18
Speaker 3: of it with no interest, fantastic, once you get past
31:21
Speaker 3: that zero percent interest rate period, the interest rate is
31:25
Speaker 3: often higher than on a normal credit card because people
31:28
Speaker 3: know that you aren't going to meet those financial commitments.
31:31
Speaker 3: So she's probably paying a lot more on those credit
31:34
Speaker 3: cards than what is necessary. But then also, if she's
31:37
Speaker 3: got ten thousand dollars in credit card debt, she's had
31:39
Speaker 3: it for five years? How many thousands of dollars? So
31:41
Speaker 3: she spent on interest already.
31:43
Speaker 1: So would you recommend her payback the credit card debt
31:46
Speaker 1: that she has instead of She said she wanted to
31:47
Speaker 1: save up to like a thousand dollars first before she
31:49
Speaker 1: thought about paying that back.
31:51
Speaker 3: And if that's her goal and that's her value, then fine,
31:54
Speaker 3: But I wouldn't want any more than one thousand dollars
31:56
Speaker 3: in her savings account before paying back those credit cards.
31:59
Speaker 3: In fact, paying back her credit cards should be being
32:02
Speaker 3: prioritized over saving, Like, you don't need savings if you're
32:06
Speaker 3: paying back credit card debt.
32:07
Speaker 1: Okay, okay, So what I'm hearing from you Victoria is
32:10
Speaker 1: reevaluating her living situation is probably a top priority for her.
32:14
Speaker 3: Yes. Absolutely, If you can't afford to do things, don't.
32:17
Speaker 3: And if you're affording to do things because they're being
32:20
Speaker 3: put on credit, that is not affording to do things
32:22
Speaker 3: like save up for them, earn the things that you
32:25
Speaker 3: want to spend money on. And you know, at the
32:27
Speaker 3: start of that episode, she mentioned that she's just spending
32:29
Speaker 3: twenty dollars here or there on the top that she
32:31
Speaker 3: never wears again, don't buy the top, put twenty dollars
32:34
Speaker 3: on your credit card. It is not worth being in
32:36
Speaker 3: debt for as long as she's been in debt because
32:39
Speaker 3: over time, debt compounds in exactly the same way investment does.
32:43
Speaker 3: And I get really excited about the power of investment,
32:45
Speaker 3: but it is terrifying the power of debt.
32:48
Speaker 1: She can do it, though. I think she can turn
32:49
Speaker 1: it out.
32:49
Speaker 3: Absolutely, she can do it, but she needs to do
32:51
Speaker 3: it herself for sure.
32:53
Speaker 1: That's all we have time for today. Just before we
32:55
Speaker 1: head off, as always, let's quickly wrap the boring but
32:58
Speaker 1: important stuff. The advice shared She's on the Money is
33:00
Speaker 1: general in nature and doesn't consider your individual circumstances. She's
33:04
Speaker 1: on the Money exists purely for educational purposes only and
33:07
Speaker 1: should not be relied upon to make an investment or
33:09
Speaker 1: financial decision. And of course we promise. Victoria Divine is
33:12
Speaker 1: an authorized representative of Consultant Financial Advisors Proprietary Limited ABN
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Speaker 1: six five double six three seven three double nine five
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