Sep 24

If you are one of thousands of Aussies who are seeing their debts growing every month without an apparent ‘way-out’, you should remeber the old adage – “if you always do what you have always done, you will always get what you always got”.

In other words you approach to debt and finance requires a serious review. Here are some tips and ideas:

1.Document the amount of income you are expecting every pay period from all sources. Include your take-home pay, any centrelink benefits and money from other sources.

2. Identify your essential expenses, like rent and mortgage, fuel and food. Don’t forget the unforeseen such as like dentists, insurances, shoe repairs or haircuts. Also document the luxury items that you consistently indulge in.

3. If your expenses exceed you earnings – there are only 2 solutions. You can either increase your income or cut your expenditure.  The former is very difficult to do if you are already in a full time employment.

Review all non-essential and luxury expenses. You must understand that things will continue to get worse and worse financially until you decide to balance your budget.

Perhaps you should consider selling off some of your assets to repay debts.

4. Increasing you income is of-course an option. Perhaps you can obtain a part-time job.

5. Write down all arrears payments, loans and credit commitments. Some debts, such as rent or mortgage arrears and credit arrangements, can cause more problems than others. Deal with these first.

6. When you have a financial statement showing all income and outgoings, decide how much you can afford to pay off existing debts.

Professional Debt Negotiation costs money. Why not try to contact your creditor, explain your situation and make an offer. Try to reach an agreement about what you will pay.

Taking out another loan to pay off existing debts is not an answer unless your new loan is cheaper and enables you to repay your debt faster.

While there is less stigma attached to bankruptcy these days, generally speaking Bankruptcy has numerous implications and should be a last resort.

Before considering bankruptcy as a way out of financial problems, understand the rights and responsibilities of such action.

Advantages of Bankruptcy

* CREDITORS cannot approach bankrupts.

* INCOME is protected from recovery action, up to certain amounts, to ensure you have enough to survive.

* ASSETS are also protected, if essential. For example, your home, car, tools of trade and employer superannuation contributions.

Disadvantages of Bankruptcy

* BANKRUPTS come under the direction of a trustee, who can control your personal financial affairs.

* TAKING directorships in companies is not allowed.

* PASSPORTS may have to be surrendered.

* BORROWINGS are limited.

* NON-ESSENTIAL assets are at risk in recovery action, including property and private superannuation contributions.

* CHEQUES cannot be over a certain amount.

If you have any money in your Superannuation you may be entitled to claim access to it due to Financial Hardship.

Under normal circumstances, people are discouraged from withdrawing their super either through onerous tax penalties or legislative barriers. However, you can apply through the Australian Prudential and Regulation Authority for access to your super in the case of hardship.

In some cases it may be worthwhile to apply for a Formal Debt Agreement – Part 9 under the Bankruptcy Act.

This is less severe than Bankruptcy and will have the effect of getting creditors ‘off your back’ while you maintain a set repayment schedule at a level which you are able to afford.

Sep 21

Former RBA senior economist Paul Bloxham believes that Australia’s interest rates will be lifted five times over the next 15 months, leaving the official cash rate at 5.75 per cent by the end of 2011.

Mr Bloxham has indicated that the reserve bank will lift rates by 125 basis points by the end of 2011, with the first rise expected by the end of 2010.

“On interest rates, our view remains that the positive outcomes mean the Reserve Bank will probably make another move upwards before Christmas,” Mr Bloxham writes in an HSBC report dated 20 September.

While the housing market has certainly cooled, the same can not be said about the mining industry which is very boyant.

“Beyond that horizon, we see further upward rate moves over the next year – probably in the vicinity of 100bp over 2011.”

Following the release of lower-than-expected June quarter CPI figures, Mr Bloxham suggests rising cost of utilities and a weak housing market will pressure inflation figures. The underlying rate of inflation dropped to 2.7 per cent in the quarter, within the RBA’s two to three per cent target band.

“Combine this with the tight labour market and expectations of rising wages, and the joy associated with inflation being back in the target band (for the first time in three years) could be relatively short lived,” he writes.

On house prices, Mr Bloxham says sideway movements in house prices are likely a comfort to the Reserve Bank, suggesting concerns on an overheated market are unlikely to be a central consideration in monetary policy setting over the coming months.

Housing shortage is likely to stay with us for some time still.

Mr Bloxham’s report coincides with comments from RBA governor Glenn Stevens yesterday that monetary policy would play its role in managing a “fairly robust upswing”.

Sep 17

According to a story in the Financial Review today, ASIC is intending to monitor closely the activity in the following areas of finance : credit cards, payday lenders, high-interest mortgages and lenders operating outside the new National Credit Code.

In an interview, Greg Kirk from ASIC has told the newspaper that action will be taken where lenders appear to be acting not in the best interests of the client or even seem to be taking advantage of the client.

Some consumers already in financial distress are being offered home loans with fees of more than $20,000, and “we expect to have a big impact there.”

He also queried the “large-scale and highly automated” practices of banks in generating credit card offers and offers of increased credit limits, and which lacked interaction by the lender with the target customer.

Sep 13

According to figures reported by the Australian Bureau of Statistics, the total personal finance commitments dropped by 0.7 per cent in July, seasonally adjusted, to $6.833 billion, down from $6.882 billion in June 2010.

The overall commercial finance grew 8.2 per cent in July, seasonally adjusted, to $29.785 billion, up from $27.537 billion in June.

Lease finance was up 3.2 per cent in July to $386 million, compared with $374 million for the month of June.

Home Loans and Mortgages taken out by owner occupiers grew 2.3 per cent to $13.761 billion in July, up from $13.458 billion in June.

Sep 10

BANKS are marketing overdraft accounts to depositors – but these are a trap that should be avoided.

ANZ home loan borrowers are the latest to be invited to apply for $1000 “safety net” credit limits – with an interest rate of 18.87 per cent.

The Consumer Action Law Centre’s Nicole Rich said banks are looking for ways to sell more debt to the unwary consumer.

Once an account holder starts eating into an overdraft there is no interest-free period, unlike with a credit card. Then they end up paying interest from day one.

Trapping people into debt just to keep up with living expenses – via credit cards, account overdrafts, or other products – is not the way to go.

According to Vanessa O’Shaughnessy from the ANZ bank, the recent special offer, sent only to home loan borrowers with a good credit history, provided them with a financial buffer and helped them avoid a $6 dishonour fee for accidentally overdrawing.The unsolicited letter, promising to end the inconvenience of declined transactions and bounced cheques and their costs, offers to waive a usual $5 monthly credit facility fee; the interest rate is mentioned only over the page.

However in the light of recent national credit law changes such unsolicited offers are simply not acceptable as they are nothing more than just another debt trap for the unwary.

The Commonwealth Bank has a $300 or $1000 transaction account overdraft, offered through online banking, with a 16.85 per cent interest rate.

Sep 2

The share of Australian home loans written by Credit union and building societies has grown by 10% to $50bn for the year to June 2010,

According to the Australian Prudential Regulation Authority,  credit unions and building societies have earned a combined net profit after tax of 53.7%, while their total assets increased by 8.2% to a total of $73bn.

“The APRA statistics confirm that credit unions and mutual building societies have recorded impressive results in a market dominated by the major banks. It shows that consumers are responding to the difference offered by a mutual banking institution,” said Abacus CEO Louise Petschler.

CUBS hold over 9% of the new home loan market and are the fifth-largest holder of household deposits in Australia.

“These results follow on from the RBA’s latest Financial Stability Review that showed that credit unions and building societies hold higher levels of capital than banks and have much lower non-performing loan ratios.” said Petschler.