Debt Challenge

Reporter: Josh Fajzullin

Australians love debt and despite all the books, columns and financial counsellors flooding us with advice, most of us can't escape the cycle. But tonight here's proof there's a way out of the debt doldrums.

When we first visited six families in 2008, they were up to their eye balls in debt. With maxed out credit cards, out of control electricity and grocery bills and mortgages they couldn't afford, the residents of Debt Street were setting themselves up for financial failure.

But then came a visit from savings saviour, Fiona Lippey. The queen of frugal was given the task of curbing each family's spending habits. "I really think we can save each family ten grand", Fiona said.

It was ambitious, but four months later when we returned. Fiona had savings success.

But have their financial habits changed for good? Fiona's back to find out.

A new kitchen, an overseas holiday and savings to show, but 3 years ago, single income Michael Hart and his family couldn't have dreamed of it. "Since debt street we basically started shopping at ALDI and we still do that today", Michael said.

Michael's family has saved $7000 so far, just on groceries, by following Fiona's advice. The investment property that was dragging them down is now helping, being positively geared.

Reducing their credit card limit and cutting back on luxuries has saved Gordon and Judy thousands of dollars -- enough to afford to renovate and travel overseas. It's also helped them survive the GFC and the rising cost of living. "We're planning hopefully, we're in the process of planning, a trip overseas next year to Canada", Judy said.

"By packing our lunches every day and not buying coffees we've been able to buy a $5000 bedroom setting", said Jane.

Sandra and Jane have stuck to their savings guns in some areas but relapsed in others. The cardinal sin is credit card debt -- back then they cut up all 4 in front of us but couldn't do without them -- now they've got 5. "It's a shame they have kept their credit cards. It would have been much better if they'd swapped to debit cards and it's even worse that they have more credit cards", Fiona said.

"Credit cards are useful because it gives you instant access to spending power but what you should want to do is pay the debt down back to zero again", said author of "Debunking Economics", Steve Keen.

Steve says with a second recession looming, it's not a good time to have debt and instead of blaming ourselves or being frugal, really we should be fighting the banks. "There should be rules that say the minimum credit card payment is enough to reduce your card to zero in some sensible length of time but the banks don't want you to do that", he said.

"You can get into huge amount of debt in the blink of an eye but it takes years to climb back out again In three years they've done well, they need to keep going", Fiona said.

As our financial fairy's shown, Debt Street isn't all one way traffic. Fiona says even she got something out of the three year experience. It was the inspiration for her book "The $21 Challenge", which is all about driving your dollar further.

Six couples on their way to financial freedom -- but they have to keep going.

And you can purchase Fiona Lippey's book "The $21 Challenge" at her website