Debt Consolidation, Debt Solution, Debt Relief

While  most Australians are not  going to feel the impact of yesterdays rate cut for some time, debt consolidation may be both cheaper and easier, with the new interest rates.

People with a large number of unsecured debts as well as a mortgage could always look into debt consolidation by consolidation their unsecured debts into their home loan. Now that the home loan rates have been reduced by most lenders, debt consolidation into the mortgage will be even more cost effective. If your current lender does not want to consolidate your unsecured debts, ask others. If you do find a lender willing to assist your reduction in monthly repayments could be rather significant.

Whats more, if you could not qualify for the debt consolidation loan you were after previously, now with a lower interest rate you may just be pleasantly surprised.

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.

Many victims of Queensland’s floods have huge debt problems where their home loan debt is in excess of the value of their home.

Recent property valuations conducted in areas affected by the flooding earlier this year – show substantial value drops in the flooded areas.

Valuations on 23,000 properties impacted by the floods show estimated devaluation of between 5 and 25 per cent.

In the flood-hit suburb of Fairfield the average land value reduced by 15.6 per cent while values in Graceville fell 3.6 per cent.

Over the same valuations period the suburb of Grange rocketed by almost 30 per cent.

Overall, residential Brisbane prices increased by 6.9 per cent.

The problem comes when borrowers with current mortgages need to refinance or decide to consolidate their debts into their property equity – the value is simply not there.

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.

According to a recent survey by Mortgage Choice, almost twenty percent of recent homebuyers are carrying unsustainable levels of debt - some as much as $100,000 in addition to their mortgage.

Some of this extra debt has gone on to their credit cards, some into home renovation and some into the purchase of a car.

Many people breathe a sigh of relief once they get their home loan approved and some begin to take on additional obligations which they can ill afford.

The number of people saying they had accumulated significant extra debt was 15 per cent higher than a year ago, with 45 per cent saying they had spent more than $20,000.

Five per cent added more than $100,000 within the first two years of home ownership.

Eight per cent of the 803 people surveyed said they may need to sell their home as they are not able to afford all their debt obligations.

The same number said they would consider selling up if interest rates went up by one percentage point.

The two biggest issues for 2011 were rising interest rates (47 per cent) and cost of living, such as utility bills and clothing (24 per cent).

The main concerns were being committed to large financial commitment for so long (48 per cent), followed closely by not being able to afford repayments (46 per cent).

Despite these concerns, only 29 per cent of respondents had mortgage protection insurance, 28 per cent income protection issuance and 32 per cent life insurance.

While most of the people surveyed have only had their home loan for two years or less, 28% did not know what interest rate they were paying on their mortgage.

AUSTRALIAN households are trying to minimize the use of credit cards, in an effort to eliminate debt collected on plastic by more than 10 per cent and reducing the number of cards they own.

The average Australian family has reduced credit card debt by 14 per cent and trimmed their cards from 2.1 in the third quarter of 2010 to 1.9 in the fourth quarter.

Victorians were the leaders in debt reduction by cutting 25 per cent off their quarterly credit card balance from $2286 to $1724.

Households in New South Wales followed closely, reducing credit card debt by 21 per cent from $2103 to $1651.

South Australia was the only state where households had gone against the trend and actually accumulated more credit card debt during the quarter by a whopping 151 per cent with spending up from from $699 to $1760.

The November interest rate increases had put the fear into many families with already high credit card balances.

Households in all states either reduced the number of cards they own or maintained the same level. NSW households cut back credit cards from 2.1 in the third quarter to 1.8 in the fourth, while Victoria was down from 2.2 to 2 and Queensland 2 to 1.8.

One in four households are saving more than they did prior to the GFC and only 17 per cent are spending as much as they did prior to it.

Nationally, median savings were up from $8912 in the third quarter to $9238 – a 4 per cent rise.

WA achieved the best results with savings – the average household increasing savings by 73 per cent from $9327 to $16,107.

It is clear that Aussies are becoming more financially aware.

Now that the festivities are over you have probably accumulated a few more pounds and a significantly larger debt balance.  Like many other Australians  you are probably tired of Robbing Peter To Pay Paul and are looking for some more durable debt elimination solutions.

Here are some steps that you can take immediately to improve your financial position:

1. Budget, Budget, Budget. Document all your ongoing obligations, your living costs, mortgage repayments, credit card debts etc, as well as all your sources of income. Try and work out a payment schedule that allows you to cover all your debts and leaves a little extra to reduce obligations. If you genuinely wish to improve your situation – if it is not in the budget Do not purchase it……
2. Awareness of available options . Keep up-to-date with the latest home loan products advertised, as well as offers to roll-over credit card debts into a low interest card for a few months or a year. Some of these can really help reduce monthly repayment obligations.
3. Direct  surplus funds into the debt accounts starting with the one that charges the most interest while maintaining minimum payments on other accounts. For example if your credit card interest rate is 17% and your store card has a rate of 13%, direct minimum payment to the store card and surplus funds to the credit card – this will save the interest paid at a higher rate.
4. A higher income should not mean higher living costs even if you are lucky enough to receive a pay rise – that way you can use the extra funds towards savings or your mortgage.
5. Make larger than the minimum set payments if you are able to do so. Get ahead of any future rate rises and fix your repayments on a higher rate now as if the rate were 1-1.5% higher. This enables you to pay your home loan off quicker and save a lot of money in interest before any rate rises and thus get ahead while rates are unchanged.
6. Set your Mortgage to fortnightly repayments. Set your repayments fortnightly instead of monthly, as you will then be making 26 payments in a year rather than 24. This in turn will save you interest costs and reduce the term of your loan.
   For example, if you have $250,000 loan for 30 years at 7.82%, a fortnightly repayment will save you $114,926.11 and reduces the loan term by seven years and three years over the life of the loan.
7. Move your debt to a cheaper credit card. Switch to a low interest card and choose one without annual fees or transfer fees. If you have $1,000 in your credit card at 15% interest, switching to a lower interest card at say 8.9% with no annual fee will save you more than $800 on interest and fees each year. If you put that saving in your mortgage you will cut your 30-year $250,000 loan by three years and eight months and save more than $58,000 on interest.
8. Stop buying lunch-bring it from home. Bringing your lunch from home more often in the working week and putting the savings made into your mortgage can significantly reduce your interest payment and the term of your loan.
9. Eat at home more. We all love the take-away meal and seem to eat them on a regular basis. If you were to give up one super-sized take away meal a week, say $7, and pay it off your home loan you would save nearly $25,000 and also about two years off your loan, plus imagine how good you will look. Home cooked meals are healthier for you as well as for your wallet.

According to the Real Estate Institute of Australia, we have suffered the largest annual decline in housing affordability since the beginning of this century.

The REIA Deposit Power Housing Affordability Report released yesterday, has revealed that over the September quarter, the total number of loans (excluding refinancing) was down 2.9 per cent to 101,364. Housing affordability has also fallen by 0.2 percentage points nationally in the September quarter.

Meanwhile, over the year, the total number of loans written fell by 28.3 per cent – the largest annual decline in Australia since March 2001, according to the report.

The proportion of income required to meet loan repayments increased 5.8 percentage points over the year to be 34.8 per cent.

We have not seen such low levels of housing affordability in a long time. Unfortunately it is not all related to real estate prices – much is to do with the current levels of interest rates and the costs of mortgages.

“Compared to the same quarter of the previous year, all states and territories recorded a decline in housing affordability.

“The largest drops in housing affordability were in New South Wales and Victoria where the percentage of income required to meet loan repayments increased 6.5 and 7.5 percentage points respectively,” Mr Airey said.

Keith Levy, national manager of Deposit Power, said there had been reduced sales from property investors in the last quarter, as many purchasers appeared to be taking a ‘wait and see’ approach.

FORMER tennis star Mark Philippoussis has received a bankruptcy notice as a result of monies owed from a mortgage default on his Melbourne home.

The lender, Perpetual Trustee Company, applied to the Federal Magistrates Court in Sydney yesterday for ‘’substituted service” of the bankruptcy notice, which means that Perpetual can formally give the notice to Philippoussis’s lawyer or representative. Philippoussis is currently overseas.

The moves to bankrupt Philippoussis come after numerous unsuccessful attempts to settle the mortgage arrears through selling his Williamstown property.

Mark had borrowed approx. $1.2 million from lender General Motors Acceptance Corporation in February 2008 to purchase the townhouse overlooking Port Phillip Bay, which he shared with his mother, Rossna.

The mortgage was later sold to Pepper Home Loans after GMAC withdrew from the Australian market.

Pepper Homeloans chief operating officer David Holmes said that the home had sold for $835,000 in November 2009, less than the amount owed on the mortgage.

Pepper Homeloans’s involvement had ceased when the home was sold. The bankruptcy is an attempt by the lender to recover the monies owed to them.

Philippoussis, 34, who was once ranked No. 8 in the world, was also sued by Perpetual in the Victorian Supreme Court last year over a claim for $1.3 million. It was alleged he defaulted less than a year after taking out the loan.

Philippoussis last played on the ATP world tour in 2006 but won an event for retired professionals in Arizona last month.