The email read: "My husband and I are in real financial trouble. We are struggling to make our mortgage payments, the credit cards are maxed, and we are expecting our first child later this year."
A few years ago I would receive an email like this about once a month.
Now they come in every few days.
I reply to each one, but only with a limp-wristed response that's been carefully crafted because of regulations governing financial advisers: "Thanks for your email. Unfortunately without a thorough overview of your financial situation I am unable to give you financial advice. I urge you to seek out an independent, not-for-profit, financial counsellor to help with your situation."
Although I have an Australian Financial Services Licence, the law states that I cannot give financial advice unless I have a thorough overview of a person's situation.
I have checked with the corporate cops, and I'm led to believe that my column is classified as "general advice" and therefore cannot land me in hot water (although dodgy loan companies threatening to sue me for appearing in these pages are another story).
So, Sam and Sarah from suburbia, here is my "general advice" on what to do when two incomes become one, which then has to feed three. Better yet, if you know someone who could do with a hand, tear this out for them.
These four steps will slash years off your home loan and put thousands of dollars back in your pocket. So let's get started:
The first step to getting off the debt merry-go-round of misery is working out exactly where you stand financially. People who are in debt rarely have it all written down in one place. Usually it's kept as a mental scorecard that leads to worry and depression - but seldom to any action.
It's time to build a debt pyramid.
Gather together all your debts, including money that you've borrowed from friends, outstanding parking fines and overdue bills, and then separate them by interest rate.
Next, draw a pyramid on a sheet of paper. At the top write in the highest-rate debt you have and then work your way down to the lowest rate of debt (which is usually your mortgage). Finally add up all your outstanding debt and stick the total on the fridge so you see it daily.
The second step is to get your hands on $1000 as quickly as possible. Busk on the street. Go on Big Brother. Sell stuff on eBay. Get a grand and sock it away as savings.
In the past I've taken the logical approach that those with 20 per cent credit cards shouldn't bother saving, yet practice has taught me that unless people have some savings they'll usually revert back to credit before long.
Next, draw a line down the middle of a piece of paper. Label one side "needs", and the other "wants", and allocate your income accordingly. Then cut out the wants. Put that in your bottom drawer and return to it when you have paid off your high-interest-rate debt.
Now you've trimmed some fat it's time to move to step four - operation rescue. Work out how long it will take you to pay off any debt that's charging you more than 11 per cent.
Transfer your debts as follows:
Less than six months: Apply for a Bankwest Zero MasterCard that offers a balance transfer of 0 per cent for nine months, and no annual fee.
More than six months but less than 12 months: Apply for a Citibank Cash back card, which offers a balance transfer of 2.9 per cent for 12 months with a $69 annual fee.
Alternatively, after nine months on the Bankwest Zero, you could apply for a GE Money Coles Myer Source card that offers zero per cent balance transfer for six months with no annual fee (note: just like at high school, there are only so many times you can tart yourself around before you get a bad reputation).
More than 12 months: Apply for the IMB Low Rate MasterCard, offering a balance transfer of 4.9 per cent for the life of the balance.
Once you've transferred your balance to the new card, close your existing accounts and cut the new card up the moment it arrives. Apply for a Visa debit card so you can still make purchases and pay bills on the internet (using only your own cash). Finally, set up a pre-set amount to go off your cut-up card each time you are paid – the more, the better.
The final step is to take a look at your mortgage, and see whether you can get a better deal. Unfortunately this isn't as simple as looking for a cheaper rate. First you need to dust off your loan documents to see what exit fees your lender will sock you for leaving early, and factor that into your decision.
Remember, there are only two things that will get you out of debt quicker: lowering your effective interest rate (which builds in all the fees and charges), and increasing your repayments. Over the next 12 months, make it a goal to do both – compound interest works wonders on your mortgage too.
Which brings us to next week's budget. The Treasurer is at pains to point out he won't be spending up big so he can keep a lid on inflation, and therefore interest rates.
Too late Wayne, there's already a million people severely in the red - and they need help.
If the Government was serious about looking after battlers it wouldn't have reportedly knocked back a measly $2.5 million in funding for not-for-profit community-based financial counsellors.
I always recommend that people see the good guys, but it's easier said than done. The financial crisis means they are bursting at the seams; it can take months to get an appointment. In the meantime people can go broke, or be bitten by refinance sharks that pick away at a person's financial carcass before tossing them in the rubbish.
The state governments run most of these agencies but financial stress is a national issue that demands leadership. Given this budget is all about helping the battlers, how about some matched funding to boost these services, Wayne?
Tread your own path!