MONEY | Protect your interests from debt traps of financial system

All you have to do is keep improving your income (by improving your skills), spend less than you earn, and then invest the surplus wisely.

The emails that keep arriving telling me how that book has changed people's lives is proof that those principles still work. But the whole financial system is designed to encourage us to live beyond our means.

The latest craze is buy now, pay later (BNPL) services, dominated by Afterpay - though the number of copycat products is growing rapidly.

At first glance, they seem better than credit cards, because the maximum debt you are allowed is $2000, and as long as you pay the balance in full within the contracted times, there are no charges whatsoever.

But the reality is that spending money before you earn it becomes addictive. The latest research from RateCity reveals that over 30 percent of people who have used BNPL found themselves in money troubles as result. Furthermore, almost 70 percent of Australians aged between 18 and 34 have reported that these products encourage impulse buying.

Of course the banks have jumped on the bandwagon, attempting to compete with Afterpay and the like by offering interest-free credit cards. No, it's not a misprint, they are interest-free - the catch is that you pay a flat monthly fee based on your credit limit.

For example, the Commonwealth Bank offers a choice of three credit limits - $1000, $2000 or $3000 - with flat monthly fees of $12, $18 or $22 respectively. NAB has similar limits, with monthly fees of $10, $15, and $20.

You don't need to be a genius to run the numbers. If I had a credit card with a $1000 limit, and I was being charged a $12 monthly fee, the fee for 12 months would be $144. That's equivalent to an interest rate of 14.4 percent.

So this is not a gift from the banks at all - it's just a way of replacing the interest a cardholder would normally pay on their credit card with a fee. You could probably call it a fee for no service.

There is no doubt that credit cards encourage people to overspend, but it's hard to book accommodation or travel without one.

One way around it is to use a Visa or MasterCard debit card, which has no fees and can't get you into debt because all the card does is facilitate withdrawal from funds you already have.

However, if your cashflow is not up to that, there are some credit cards available with no annual fee. But check carefully, because when you do you will find the majority of them have "no fee for the first 12 months" after which an annual fee kicks in.

However, there are cards, such as Latitude, that do offer a genuine no-annual-fee card - surely a much better option that any of the new offerings from the banks.

When the banks launched their interest-free cards I received the usual blurbs from their media departments asking if I would like to write a story on them.

My response was, "We don't need these kind of cards - what we do need is credit cards for retirees with substantial assets but who are unable to qualify for a credit card after they retire because of a lack of taxable income."

That plea fell on deaf ears - I suppose the last thing the banks want is credit card owners who pay their credit card on time without fail.

Whatever you use, make sure you stay in charge of your spending. Don't let the banks tell you what you can afford. It is in their interests to keep you trapped in debt.

Question: When you are both Executor and Beneficiary of an Estate is there a way to protect the wishes of the person who has died.

I am sure when someone dies there is always a chance that somebody will come out of the woodwork and question the validity of the will.

If there is some wording you can use to protect the Beneficiary or must a new Will be drawn up, or can the wishes be stated in a Statutory Declaration?

Answer: Elder lawyer Brain Herd tells me that a Will can be challenged on broadly four bases: the person who made it did not understand what they were doing or were subject to undue influence, the Will is unclear, it hasn't provided for someone who should have been provided for or provided for better, and a beneficiary or executor was responsible for the death of the Will maker.

Unless it fits into any of the four bases above, there is no challenge to a Will known to law based on an assertion that a person should not be a beneficiary or should not be a beneficiary and an executor. A person can be removed as an Executor if they don't do their job properly, but a beneficiary cannot be removed except under any of the four bases above.

If a Willmaker is concerned about whether their Will may be challenged for whatever reason, they can do a Statement of Wishes which sets out why they have done their Will in the way they have. As always good advice is essential.

Question: Does drawing more than the mandatory minimum pension from my superannuation, which is not earning much, affect my aged pension.

Answer: It should not affect your pension unless your super income steam is grandfathered and you are income tested. Generally speaking, for asset test purposes, it is the balance of your superannuation account which is used - for income test purposes that balance is subject to deeming.

This means a notional income is placed on your super. Therefore withdrawals from your superannuation should have no effect unless they reduce the balance substantially. Then you may receive more pension.

Question: My husband and I are on a part pension and are inheriting cash held in two different banks. Will Centrelink include money we are inheriting if it is not in our possession yet. Probate has been granted. We are thinking of taking one cash payment but delaying the other for several months.

Answer: Centrelink staff tell me that a bequest from a deceased estate is not assessable by Centrelink until it is received, or able to be received, by the beneficiary.

They accept that it may take up to 12 months for an estate to be finalised. The survivor needs to advise Centrelink of the date they receive, or are able to receive, the bequest.

If the estate has not been finalised after 12 months, Centrelink will consider what has caused the delay. If it can be proved that the delay was outside the beneficiary's control it would still not be assessed at that time.

However, if Centrelink believe that the beneficiary has contributed to the delay, the bequest would probably be regarded as available and therefore assessable.