Debt Consolidation, Debt Solution, Debt Relief

New research conducted by East & Partners points to lack of available credit in Australia for small and medium sized businesses as the main impediment to their growth.

Almost half of small to medium businesses have had to wear an 8% interest rate increase on business loans over the past six months.

The SME sector is defined as business turning over between $1m and $20m p.a. Banks have demonstrated that their loyalty to business customers is extremely low which in time will undoubtedly affect the customers loyalty to their bank.

Of the 525 businesses included in the research, most have reported that the interest rate on their business loans had been increased by 7.9% on average.

The research follows data released by DBM Consultants, which showed a widening gap between the satisfaction levels of smaller and larger businesses with the major banks.

Bank behavior has created a significant level of dissatisfaction in the business community with their lenders.

There are growing fears that world demand for Australian commercial debt is likely to drop. As a consequence our banks will need to find new ways to secure funding.

According to reports by The Australian, global investors may choose to carry less Australian commercial debt in future as they come close to the limits of their investment mandates.

Australian banks have been among the most active issuers of debt on world markets during the last 12 months, as they act to top up their funding using international markets.

Westpac issued $3.3bn worth of debt in the US this week, while NAB managed to raise $1.3bn in Japan and Europe last week.

Sir Richard Branson had yesterday launched two new credit cards and an online savings account into the Australian market.  Both products were developed in conjunction with Citibank.

According to Matt Baxby, Virgin Money’s chief executive in Australia, the group is looking next at transaction accounts and home loans.

“The big four dominate home loans in Australia, so I think getting these products to market is going to be important for us.

“We are not going to roll into it straight away, but wait until we’ve got these (credit cards) right and we’ve invested the time.”

The mortgage products will be developed with Citibank, who are already a small player in the residential home lending market.

The partnership’s new credit card comes to the consumer with “no annual fee ever” and charges 2.9 per cent interest on balance transfers for the first six months, and subsequently 16.95 per cent.

A Virgin marketing offer has also been developed, which allows customers to accrue Virgin frequent flyer points.  Furthermore two-for-one flights and a free flight when new customers use the card before October 15 are also on offer.

The online savings account — the first time Virgin Money has offered retail deposits — has an introductory rate of 6.75 per cent for four months and 5.35 per cent thereafter for up to $1 million.

New research suggests that most credit card offers,despite their marketing, do not present real value for consumers.

Comparison of more than a dozen credit cards available to consumers in Australia has revealed that the costs associated with the cards by far outweigh the value of the rewards, assuming average annual usage.

Annual fees on 15 of 76 rewards cards analysed cost more than the rewards offered by such credit cards, while only two cards paid more than $100 in net value for average users per year.

Naturally if a consumer was to use their cards wisely and pay out all outstanding balances at end of each month, the result may be quite different.

This review was performed as Australian banks providers are finding themselves in the firing line from law firm Maurice Blackburn launching the nation’s largest ever class action, aimed at recovering an estimated $7 billion of bank transaction fees.

Of the cards analysed, only two, the American Express Blue Sky Credit Card and Myer Visa Card paid more than $100 in net value for users, putting them at the top of the list.

American Express Blue Sky and ANZ Rewards Gold and Bank of Queensland Blue were the top three paying cashback cards.

Overall, the worst cards were the National Australia Bank Gold Card, Heritage Building Society Classic and Gold with Rewards, and Qantas American Express Premium Card.

NAB Gold was assessed as the worst cashback card, followed by Citibank Gold, and AMP American Express Gold Ascent Membership rewards.

A spokesman from CHOICE was not surprised by the findings because  usually rewards cards over-promise and under-deliver.

People with very large business expenses which are paid out every month, can do very well out of credit card rewards.  However these people are in the minority.  An average person does not really stand a chance of benefiting from credit card rewards.

According to data provided by the Reserve Bank of Australia, the average annual purchases spend per credit card account with an interest-free period from June 2009 to May 2010 was $14,000.

Receivables manager Collection House has suffered a drop in cash flow  over the past 12 months as a result of a better regulated market and fewer debt delinquencies.

Collections House CEO  Tony Aveling has put their revenue drop down to an overpriced debt market.  In general terms debt recovery as a business slows down during difficult economic times.

As market conditions have began to improve so have chances of  recoverability.  Certainly lower unemployment and higher levels of consumer confidence have much to do with the present improved market conditions.

The company has also experienced reduced originations in the areas of credit cards and personal loans.  In the future areas of growth are expected through contracts with  telecommunication companies, energy suppliers and local councils.

One of the main challenges for any business operating in this space is to bed down changes introduced through the implementation of the National Credit Act.

The increased emphasis on responsible lending and better management of hardship in the new legislation meant that receivables managers, just like  lenders, have far more compliance work to do.

While the banks are being more careful about the collection agencies they dealt with. The new rules require all companies to have strong compliance regimes and ethical collection practices.

We have a lot of disappointed applicants who believe that as long as they think they can afford the repayments on a consolidation loan, a lender should approve their application.  The rules for debt consolidation are not that simple.

The first thing to consider is whether the loan is to be secured or unsecured.  If you are after an unsecured debt consolidation loan you need to have a clean credit history.  These loans are generally only offered by the mainstream lenders such as the banks and bank qualification conditions apply.  If you have any history of bad credit even a paid default you will not qualify for an unsecured debt consolidation loan.

You may however qualify for a secured consolidation loan if you are a home owner with equity in real-estate.  Such applicants find that it is most cost effective to consolidate their other debts into their mortgage at a home loan rate. However you do need to have equity in your home so that after the consolidation your overall mortgage remains under 80% of the value of your property.

If you have some history of bad credit and do not have home equity, your only consolidation option is either an informal payment arrangement or a debt agreement.

With Informal arrangements, you can agree a reduced payment for a set period of time in line with your current income.  A Debt agreement is a formal arrangement covered by the bankruptcy act whereby your creditors agree to accept a smaller amount in settlement of your debt. A debt agreement is detrimental to your credit history. While it is less serious  than declaring bankruptcy it should not be entered into lightly.

While the Federal Liberal Opposition Leaders are voicing concerns about the level of Australian Public Debt, Glenn Stevens is not concerned.  This does not mean that the RBA will hold fire on rates during the election period – certainly not.

The reserve bank board will meet in August as they do every month, it will consider all the issues for the economy and do its job, elections or not.

The opposition announced a further $1.2 billion of budget spending cuts on Tuesday, bringing its running total to $45.8 billion.

This is slightly less than the $46.7 billion of cuts flagged in its budget reply in May in light of the government’s updated economic statement, released by Treasurer Wayne Swan last week, and because of changes associated with the planned mining tax.

Opposition treasury spokesman Joe Hockey said the coalition was making announcements about savings because the budget was in deficit and government debt continued to grow each day.

“So you have got the Australian government with its foot on the accelerator spending and you have got the Reserve Bank with its foot on the brake increasing interest rates,” he told reporters in Melbourne.

But Mr Stevens clearly doesn’t see it that way.

According to Glenn Stevens, compared to the rest of the developed world, Australia’s levels of public debt are virtually non-existent.

“Based on figures recently published by Canberra, we are currently holding debt at five or six per cent of GDP. This is closer to the lowest National debt in Australia’s history.

Liberals have initiated the interest rate debate early in the campaign, saying rates will always be lower under a coalition government because it always spends less.

“I can guarantee that we will take the upward pressure off interest rates,” Opposition Leader Tony Abbott said on Monday.

Similar comments backfired on the former Howard government when the Reserve Bank took the unprecedented decision to raise rates during the 2007 election campaign – the sixth consecutive rise.

A rate rise also looks like a possibility in this campaign.

In the minutes of the Reserve Bank’s July board meeting released on Tuesday, it says inflation readings on July 28 will be key to the board’s interest rate thinking.

It expects the consumer price index will rise above its two to three per cent inflation target band because of a rise in some taxes.

But the more policy-sensitive measure of underlying inflation is expected to show “further moderation”, although it was likely to remain in the top half of the target range over the period ahead.

“The important question for the board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation,” the minutes said.

One in two Australian households are concerned about growing interest rates  but only one in five believe that their debt levels will keep going up.

A recent survey into consumer credit expectations conducted by Dunn & Bradstreet included the views 1205 adults across the country. The survey found that almost half the people interviewed expected that further rate increases would create financial difficulties for their households.

The credit reporting agency conducted  this survey in June, just following  the Reserve Bank (RBA) rate increase to 4.5 per cent, its sixth rise in eight months.

Households with dependent children expect to experience more stress, with 55 per cent of respondents with children saying another rate rise would have a negative impact on their finances, compared with 43 per cent of households without children.

It seems that financial stress would result in additionale debt for just 20 per cent of households.

Expectations of spending in the September quarter show almost half of respondents aged under 50 intended to use credit to pay for planned expenses over this period.

The RBA’s credit and charge card statistics for May 2010 reported that the average credit card balance reached $3248 in May 2010.  This represents an overall 5% increase over the past year.

Did you know that most consumer lenders  (including providers of mortgages, car loans, personal loans and credit cards) are Under the Consumer Credit Code obliged to consider offering customers experiencing financial hardship a flexible payment arrangements .

This requirement is also applicable to banks, other lenders lenders and debt collectors attempting to recover debt.

If since you first applied and were approved for your loan, your circumstances have changed and you are no longer able to afford your repayments – why not talk to your credit provider.  If you believe that you could manage your loan if the monthly payments were reduced, or otherwise changed, you have a legal right to request and be afforded a credit hardship variation to your payment schedule.