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The credit card generation destroying the piggy bank

 2/11/2009 12:41:00 PM, Michelle Hutchison Prev Next After reading about a study conducted by St George Bank, I realised my earlier spending habits were not unique. In fact, the study found that almost all of generation Y surveyed had borrowed money informally from friends. That works out to be $2.6 billion changing hands through IOUs by gen Y every year.


As soon as I was old enough to buy a vodka and cranberry juice with my own ID, I was hanging out at all the cool spots of Sydney watching bands play on Friday and Saturday nights. Every time my group of friends would go out, only half of us had money and the other half was broke.

This meant we would always shout each other drinks and, soon enough, there were too many IOUs to count. No wonder we couldn't stick to a savings plan!

The survey also found that one-quarter of gen Y — dubbed the credit card generation — had never budgeted or saved for anything in their lives at all. With lending conditions tougher than ever to borrow money for a home loan, how will generation Y ever be able to afford a deposit and buy a home?

Here's a plan to help you wean yourself off your credit card addiction and start saving:

Step one: Put a pair of scissors through it #&151; or at least have the credit limit reduced. If you're hoping to buy your first home, remember that lenders look at your credit limit as a debt whether your balance is nil or your card is maxed out. This can impact on the amount of money they will lend you, so try to keep your credit limit to as low as possible.

Step two: Okay, so you tell your husband you should keep your credit card for emergencies, but truthfully you treat yourself to a shopping splurge occasionally. If this sounds like you (well, it definitely sounds like me!) then you need to compare the fees and interest you are being charged. Try using RateCity's credit card comparison tables.

Interest rates for credit cards currently range from 9.99 percent to 19.99 percent per annum — and many credit cards have no annual fees, whereas some charge up to $1200 every year! If you have more than one card, consider rolling your debts into one account or take out a debt consolidation loan to rid your credit card debt as they generally have much better interest.

Step three: Now it's time to compare savings options. There are some great online savings accounts that earn high interest and many don't charge fees. The best part is you can set up an automatic savings plan which regularly deposits money into the account from your debit account. Term deposits have a guaranteed return but your money is locked away, so think about how often you access your cash and decide whether to lock some away and put some in a savings account.

No matter what your savings plan, the sooner you lower your debts and credit card limits and regularly put away some money, you will be closer to the dream of home ownership.

Your say: What's your bank charging you on your credit card? How do you stay ahead of your repayments? Share with us below...
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