Ask Paul: I owe $70k in credit card debt and can't see a way out


Q. I am a 56-year-old engineer who has a $400,000 mortgage via an interest-only loan and $70,000 in credit card debt.

My 49-year-old wife works part-time on $20,000pa and we have two children, six and eight.

My credit card debt accumulated via repeated cyclical bouts of employment/unemployment in the resources industries.

I decided instead to try for sustainable self-employment.

Year one was $18,000, year two was $48,000, year three projected $60,000 but still a long way from my usual $160,000. I am paying 5.75% on my mortgage, and about $700 a month in credit card interest.

My bank lender said no to rolling all debt onto a mortgage, as my income is not high enough when averaged over the past two years. I have sufficient security and an excellent credit history.

Is there a sustainable solution? - David

A. The resources industry has been a volatile ride for shareholders, companies and in particular employees, David.

I am saddened to hear the impact it has had on you and in particular the build up of credit card debt.

As an engineer, you are a man who gets numbers and logic and it further saddens me that I have nothing you do not already know.

With your wife's income and yours combined, it makes little sense for me to tell you the obvious and to pay down the credit card debt. With two kids and a mortgage, you will not be able to.

The next part you also already know. Your business is showing nice income growth and the success in building it up is critical.

My hope will sit alongside yours: that the business gets to $60,000 in year three and hopefully well over $100,000 by year five.

But until that happens, unless the recent surge in iron prices brings a job paying big money, it is all about building your business.

Sorry that I am pretty useless here, but I do wish you all the best with your business.


Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
Liz Johnson
November 14, 2019 8.06am

Good morning Paul

Not too much of a problem! I have a 1 bedroom unit full owned I live in and have just bought anither 1 bedroom unit $252000.00 - mortgage $288000.00 which the tenant vacates in January 2020. Should I move in there and pay a lower interest rate and receive $4700 refund from Stamp Duties or keep it rented out at $350.00 per week? Thankyou in advance

Money magazine
November 14, 2019 10.03am

Hi Liz,

Thank you for your comment. Unfortunately Paul cannot reply to questions in the comment section. We will pass your message on to him for consideration in the Ask Paul section of Money magazine.

- Money team

Chris Hill
November 14, 2019 6.05pm

I'm not a financial adviser, but I'm not sure the information here is enough to provide good advice.

All my calculations here have been done quickly from my mobile phone so may be inaccurate.

I calculate that David is paying just over $1900 in interest. Depending on his LVR, he could refinance with an online only bank. One of the better known ones is currently offering 2.84% P&I, so making a ~$250 a month saving based on a 30 year loan, with the added benefit of building equity in the property. That $250 a month could make a big dent in the credit card debt quite quickly.

Alternatively, David could consider renting. Depending on where he lives (again, we don't have this information), he could possibly find a suitable property for his family for $400 a week, so a similar outgoing to the P&I mortgage above. This would also have the added benefit of meaning he doesn't need to pay any maintenance costs, and is protected from any potential decrease in value of his property, although also meaning that he wouldn't benefit from any potential increase in value.

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