Cash Is Cool: If You Don't Have It, You Can't Spend It
Sydney Morning Herald
Wednesday June 20, 1990
PEOPLE are made to feel they must have a credit card to be successful, sexy or sophisticated, according to a financial planner, Mr Richard Sterling.
Banks and other organisations marketing credit cards aimed at the young and promoted the image that it was "daggy" to use cash, he said.
"Cash is the way," he said. "I use cash. I know I won't get into trouble.
"I don't have any credit cards. I refuse to use them. I suggest to most people that they cut them up, because even if they hide them under the mattress they're bound to get them out again."
Mr Sterling, of the independent financial planning firm Reid Sinclair Ltd, based at St Leonards, said people often had six or seven credit cards, most of them with the credit limit exhausted.
"Credit cards have been very easy to get over the past few years," he said
"You start off with a $1,000 limit, then you spend that up, then you apply for another $1,000, then you get that.
"It's very easy to get up to $3,000 without too many questions being asked. A lot of people have up to $7,000 to pay back on various cards. When you add together all the 'minimum amounts due', they don't look so minimum any more."
People may have to pay back only 3 to 5 per cent of their debt each month, but they forget about the 21 to 24 per cent interest. Debts of $3,000 may take up to five years to pay back, at a total cost of about $6,500.
"You're paying more than double," Mr Sterling said.
"A lot of people never pay off the credit card - they spend and, as soon as they get a little bit of credit available, they go and spend again."
Many people had no personal savings at all, he said.
"They borrow money to pay off loans, then borrow again to make a new purchase. Then they look at another loan to consolidate all of that, and each time they get deeper in debt.
"What amazes me is the number of young people with incomes of no more than$20,000 who have a car loan with repayments of up to $450 a month - that's crazy.
"Plus they'll have at least two credit cards. A lot of these people are no older than 25."
Mr Sterling said the way to get out of debt was to "go out less often, hire fewer videos, organise the grocery shopping better".
Credit cards should be paid off as quickly as possible. No need to wait for the monthly statement - weekly payments were often more effective.
People who could not keep up repayments on debts should contact their creditors first, in writing, explaining their situation and how they intended to pay back money.
"If you take the initiative, admitting you have done the wrong thing, that will always go in your favour."
Mr Sterling suggested people should limit the number of credit cards they had. Bankcard was fine for someone unlikely to travel outside Australia, a Mastercard or Visacard for someone going overseas.
"Go for a reasonable credit limit, such as $500 to $1,000, full stop," he said.
Many people on the North Shore thought property was "the be-all and end-all of investment". While most had valuable homes, they also needed investments to provide cash.
Above all, people should save - at least 10 per cent of their salary.
"There's this army of people out there saying 'spend, spend, spend'," he said. "Here we are saying 'Save a bit, it's good for you'. But sometimes it seems as if we're swimming against the tide."
© 1990 Sydney Morning Herald
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