Chop Up Those Credit Cards

Take out the 'ouch' factor If the rate rise is sending shivers down your spine, says ADAM BENNETT relax, it's not so bad if you're prepared to cut down on credit cards

THE skies may be gloomy for mortgage holders after the latest interest rate rise, but with a simple tightening of the belt they should be able to weather the storm, financial experts say.

The Reserve Bank of Australia's (RBA) decision to lift interest rates by 0.25 per centage points sent a shiver down most homeowners' spines, with the hike adding about $50 a month to repayments on a mortgage of $300,000.

The rise has sparked fears that debt-laden householders - already hit by high petrol prices, and with Christmas on the horizon - will strain under the weight of the third rate hike this year.

But the message from financial planners is don't fret, just be willing to tighten your belt - and maybe, just maybe, think of getting rid of your credit card.

Drawing up a budget and cutting up Your credit cards are fundamental to averting a rates-inspired crisis, says Deborah Southon, executive director of debt advice firm Fox Sytnes.

"This is the time for people to sit down and actually have a look at what their expenses are and if they have credit card debt, to cut up those credit cards," Ms Southon said.

"They need to address the situation, and I'd start with a budget, saying `What am I receiving? What's going out? Where can I cut that down?'.

"And if they're using those cards to pay their utility bills - stop it.

"We're seeing people come through who have been relying upon credit cards to supplement their income and actually pay their utility bills or their groceries."

Avoiding the temptation to splurge on that new plasma television and other non-essential items, particularly in the lead-up to Christmas, is also an important step on the road to debt recovery, Ms Southon said.

"Sometimes we see people coining to us and it's that latest purchase of the plasma, $3000 or $4000, or the replacement of the car that's caused the problem," she said.

"People will go out and they'll take out finance to buy a car, and they think, `Well I can actually service that, it's only $150 or $200 a week'.

"What they don't factor in is that besides repaying the loan they have to pay for insurance, car maintenance and repairs.

"They tend to simplify their outgoings and not take into consideration what they've obliged themselves to."

The chief executive of non-bank lender Mortgage House, Ken Sayer, said debt consolidation could help mortgage holders drowning under the weight of too much debt.

Rolling debt, particularly high interest credit card debt, into one loan will provide some relief when having to make repayments he said.

"Where possible, refinance high interest debt such as credit cards into the home loan," Mr Sayer said.

"Even though home loan rates have gone up they are still cheaper than credit card interest rates which are also likely to rise." With Christmas on the horizon, both Mr Sayer and Ms Southon said a tight financial position needn't spoil the celebrations.

"Forward budgeting and putting a little aside for the whole year definitely helps, but those that haven't done that this year will need to shop around and remember that Christmas is not just about spending a lot of money on gifts," Mr Sayer said.

Whatever you do, don't put those pressies on the card, Ms Southon said.

"Avoid putting all your Christmas items on the credit card because you will still be paying for them next Christmas," she said. "And buy discounted items, and only buy what you can afford."