Debt Consolidation, Debt Solution, Debt Relief

Personal bankruptcy activity declined in the December 2011 quarter by approximately 4%.

During the December quarter 7689 people either became bankrupt, or entered Part IX debt agreements or Part X insolvency agreements.

According to the latest information provided by ITSA (Insolvency and Trustee Services Australia) there were 8012 individuals declaring bankruptcy or entering some kind of a debt agreement during the September quarter.

The December figure is a reduction of two per cent on the December quarter in 2010.

In terms of annual statistics, bankruptcies were down four per cent year on year, while Part IX agreements were up 2.9 per cent, and Part X agreements were down 3.4 per cent.

AUSTRALIANS are expected to spend $27.4 billion this December in an annual Christmas shopping ritual, but most will avoid using credit cards whenever they can.

Credit card balances in Australia had fallen to $49.11 billion for October, the fourth monthly decline in credit card use since 1985 when statistics on credit card use began to be collated.

Mastercard spokesman David Masters believes that in the current economic climate consumers may have been holding off on spending to prevent any debt problems early in the new year.

But he said the Reserve Bank of Australia data also showed that consumers are putting more effort into repaying their unsecured debts than they are into reducing their home loans.

“The key measure of this is the annual growth rate in credit card repayments which hit 6.92 per cent in October 2011, well up from the 1.99 per cent recorded in October 2010,” Mr Masters said.

“Outstandings on cards now represents just 3.63 per cent of total household debt their lowest point for over 11 years.

Post GFC consumers have become significantly more aware of debt and focus on debt consolidation and repayment.

He said credit card and debit cards systems had built-in dispute mechanisms for consumers if fraud was suspected or promised goods were not provided.

Mr Masters said a rise in the number of purchases made on credit cards this month, as opposed to the decline in overall credit balances, pointed to the fact consumers may be opting to use cards for online shopping.

“One reason many consumers opt for cards is that they offer consumers a level of confidence that they are fully protected in the event of unforeseen problems with orders or purchases,” he said.

According to a recent survey, If RBA was to announce a cash rate drop next month,  borrowers are more likely to pay down their debts with the extra funds than use the money towards Christmas shopping.

It is unclear at this stage if RBA will move to reduce cash rate at their next meeting scheduled for cup day.

An online survey by mortgage broker Loan Market found that 55 per cent of respondents would reduce further their home loans should the Reserve Bank cut the 4.75 per cent cash rate when its board meets on November 1.

Only 16 per cent of the 460 people surveyed said they would use the savings from a rate cut to increase their Christmas budget, while 17 per cent said they would increase their savings.

Twelve per cent said a rate cut would make no difference to them.

Survey results make it clear that consumers are still very cautious and in these times of economic uncertainty would prefer to consolidate debts rather than take on additional loans.

Aussie families are spending almost half their income paying off debt, paying  power bills, covering transport costs and simply putting food on the table.

The day-to-day financial struggle is such a concern that Australians are worrying more about rising living costs than people in the US, UK, Mexico, Italy and other countries in the grip of a serious financial crisis.

The Genworth International Mortgage Trends report found four in five Australians list their “biggest concern” as rising living expenses, utilities and petrol prices. Australians spend 45 per cent of income servicing debt – more than India, Italy, Mexico and the UK – compared to an average of 38 per cent.

The report, which surveyed 9000 people from eight countries on their desire to purchase homes, found 44 per cent of homeowners and potential home buyers in Australia were worried about their personal finances but still placed a priority on meeting home loan repayments.

At the same time, four out of five Australian respondents had no trouble meeting their mortgage payments over the past year and 45 per cent actually overpaid it.

There is no doubt that debt pressure is a reality for many Australians most people are very responsible and seek help once they feel that they are unable to cope.

The high cost of living was blamed for pushing the Australian dream of home ownership out of reach, with the average age of first-home buyers increasing out from 25 years in 1986 to 31 this year.

“In the US, Canada and Australia, at lease one in five potential first-home buyers were spending more their half their income on debt repayments, suggesting that the rising cost of living is making it harder for people to buy a home in these countries,” the report said.

A new study reveals that one in seven Australian adults is under such financial strain that they are unable to afford insurance cover for their homes and cars, a new study shows.

It seems that over 2.6 million Australians would not be able to find $3000 in an emergency and many have no access at all to basic banking services,

The study, conducted by the National Australia Bank and the Centre for Social Impact, said those who couldn’t raise funds were less likely to have insurance cover, leaving them exposed to large costs.

The study found that just 46.4 per cent of severely financially strapped people had home contents insurance and only 59.2 per cent of them had cover for their cars.

NAB chief executive Cameron Clyne said adults who are unable to qualify for loans due to low income or bad credit history are more likely to experience escalating debts with no relief. These are the people who end up resorting to high costs short term loans offered in the unregulated finance arena.

Credit card users are now paying a lot more for their credit cards than they might realise.

With the cost of living escalating more and more households are resorting to using credit cards to cover the family’s weekly expenses. Many op for a low rate, balance transfer card  – however these cards are not what they are perceived to be. Recently, credit card providers have hiked “hidden” interest rates to 19.18 per cent and reduced honeymoon periods.

Based on information provided by Ratecity – financial comparison website, Credit Card holders are now paying an extra 0.42 of a percentage point on the average hidden interest rate after the honeymoon period.  Lenders market to borrowers products with perceived lower interest rates in order to attract more credit card holders with large balances. These balance transfer rates apply for a honeymoon period, before reverting to higher, permanent interest rates.

Research shows that honeymoon periods offered with credit cards have been significantly reduced, often without the knowledge of the credit card holder, some of these periods have gone to less than half of the Honeymoon period originally advertised by the card provider.

And there are 32 fewer balance transfer cards on offer since December, with just 21 offering a balance transfer interest rate of less than two per cent, seven fewer than six months ago.

Sixty-four per cent of Australian adults had at least one credit card by March.

Of those, 61 per cent intend to reduce the debt within six months, Veda Advantage’s most recent debt study shows. However with increasing costs of living and higher costs of credit, it is difficult to implement a debt reduction strategy for many.

GE Money’s GO MasterCard is the most expensive, slugging borrowers an interest rate of 21.74 per cent, while Citibank charges 20.99 per cent on three products and Macquarie Bank charges 20.95 per cent on two.

Escalation prices for electricity and other utility bills have contributed to over 1.1 million Australians being late in the payment of their bills over the past three months.Many have fallen into payment arrears.

Veda Advantage, a credit information agency, has conducted a survey that show the number of customers who missed a payment in any given quarter has escalated by 40 per cent over the past year.

On average, utility bill arrears have reached a record $500, said credit and collections agency Dun & Bradstreet.

This is nothing short of  a national crisis, and things are not about to get better any time soon.  NSW utility customers can look forward to a further 18% increase in costs from July 2011.

“It’s a really worrying situation because there is clearly a growing group of people having difficulty with utility bills as the costs continue to rise and it doesn’t look as though things are going to get any easier,” said Chris Gration of Veda.

While some service providers offer customers the opportunity to repay debts out on a payment plan, it is simply postponing the inevitable and not a real solution.

Finance companies offering high volume, low value credit products, such as credit cards, will need to refer to specific financial obligations of the borrower before qualifying the application.

Responsible lending obligations under the new credit law require all finance providers to verify to the best of their ability that the loan application they are considering, will not place the applicant in a position of financial hardship.

The Ombudsman’s view is that generic financial data can omit the particular needs of the borrower, such as additional medical and pharmaceutical expenses, voluntary commitments, such as school fees, and additional transport costs for people in remote locations.

The Ombudsman said: “Without an assessment of individual circumstances, financial service providers can offer a credit limit which the consumer cannot afford.”

The Ombudsman said NCCP accepts the need for low-doc lending “if adequate inquiries are made and the statutory provisions regarding responsible lending are met.”

“We understand that there is a place for low-doc loans to cater for those self-employed clients who are unable to provide more traditional evidence of their income. However, in our view, low-doc loans should not, as a general rule, be granted to PAYG borrowers.

“We anticipate [that any] no-doc lending on the level previously experienced is unlikely to be sustainable, given the new obligations.”

A loan will not be unsuitable if it meets the consumer’s requirements and objectives, and the consumer has the capacity to repay the loan without experiencing substantial hardship.

Lenders need to consider the stability of all sources of income of the borrower and their length of employment.
ASIC expects that inquiries into the consumer’s fixed expenses, repayments to other loans, variable expenses, credit history, age, number of dependents, assets, and any foreseeable change to the consumer’s financial situation are made by the prospective lender.

ASIC’s position is that the credit provider’s obligations are “scalable”, which means their obligations will vary with the circumstances.

The Ombudsman said that, as a minimum, the credit provider would have to see evidence of capacity to pay, such as verification of income by reference to payslips or, in the case of the self-employed, tax returns and bank statements.

According to the bi-annual Debt Study conducted by Veda Advantage, 21% of Australians are experiencing difficulties with debt management, with one in five people interviewed admitting not being able to keep on top of their Debt Obligations.

These figures represent a 2% increase from the information collected six months ago.

Of the 21% who confirmed to experiencing difficulty with debts, 2% did not know how they would resolve their debt problems.

Of the 21%who were already struggling with debt, Veda said 28 per cent were likely to apply for more credit in the next six months.

It is a real concern that many borrowers who are already experiencing financial hardship are intending to deal with the problem by taking on more debt.

If and when positive credit reporting may be introduced, it will prevent people already with debt problems getting themselves further and further into debt.

The report found concern about the rising cost of living had increased markedly since September 2010 and people were worried about transport and petrol costs which rose 10 per cent over the period.

The new credit code came into effect at the beginning of 2011. This legislation imposes strict guidelines on lenders to prevent loans and credit from being extended to applicants who do not have sufficient income to service the debt. Credit reporting had been under review since January 2006

The Federal Government is intending to implement Positive Credit reporting in Australia in mid 2012. This will assist in identifying credit applications from borrowers who are already struggling with existing debts.

The study found that 57 per cent of people were managing their debts, although 47 per cent had cut back on groceries to repay debt, up from 43 per cent six months before.

The Australian Debt Study Report is conducted in March and September over the phone by Galaxy Research Omnibus.

This is the eighth report, which interviewed 1036 Australians.

Is debt getting you down? Bills keep piling up? Afraid of bad credit? It is important to get some professional advise to understand your options.

If you feel like your debt situation is getting progressively worse – the first thing to do is cut down your spending.

If what it takes is the shredding of credit cards then this is what you should do. At the very least stop carrying all the cards around with you. You may be surprised to know that credit card use in Australia is actually growing at its slowest pace in more than a year but the average credit card balance in December 2010 was still $3314.

However this does not apply to everyone, and many Australians are still spending more than they can afford.

There is a clear difference between good debt and bad debt. Good Debt is your mortgage or your investment loan – ie. debt that is actually generation an income or equity for the investor. Credit card debts and other lifestyle debts are known as ‘bad debt’ as they do not generate wealth.

Your home loan can be defined as essential debt, not one that you will be able to reduce in a hurry but hopefully one that you are able to afford. While good debt is tax-deductible and includes loans for income-producing investments such as real estate or shares, credit card debt will include your entertainment expenses – nice to have but not essential.

Pay off bad debt such as credit cards first, as they usually have the highest interest rates. If left to spiral out of control, they can cost a person thousands of dollars in interest over many years.

DEBT CONSOLIDATION

If you have several cards that have gone over the limit, it may be cheaper to roll these over to a single secured loan or a low rate credit card.

Remember that consolidating debts only works if your monthly repayments under the new loan are lower than your existing ones.

ESSENTIAL DEBT

Interest rates on secured loans such as home loans are much lower than other unsecured loans, this type of debt should be repaid only after your unsecured debt is paid.

“The most effective way to save interest on your home loan is to make extra repayments each month. Increasing the frequency of your repayments can also reduce interest.

By increasing your repayment just $200 to $2368 a month on a $300,000 loan, with a 7.25 per cent interest rate, you’ll save about $80,600 in interest and have your loan paid off in 20 years instead of 25 years.

DEBT AGREEMENTS

Debt Agreements are not an easy way out. They are a milder form of bankruptcy and should only be considered where no other solution is available.

BALANCE TRANSFER CREDIT CARD

If you’re like the majority, your card balance will be in desperate need of reduction.

Remember that lenders will first apply payment to the initial balance of a balance transfer credit card, rather than the new spending which attracts a higher interest rate.

As a general rule, you need to know the promotional rate, when it expires but more importantly the rate you’ll pay after expiration. You MUST NOT use your balance transfer card for further purchasing.