Three quarters of us are in credit card debt

One of the myths of the credit card market is that only a minority of cardholders carry a balance on their cards from one month to the next.

In fact the opposite is true.

According to Reserve Bank credit card figures, the “revolve rate” on cards is 72% (the revolve rate is the finance industry term for cards that carry a credit balance from month to month).

Consumers spent an average of $15,963 on their credit cards over the past 12 months and carried an average account balance of $3,234.

And whilst spending on cards increased by a fairly modest 3.3 % over that 12-month period, balances still increased by 6.9% - which means we are reining in our spending on cards but accumulating more debt.

Customers with multiple credit cards should always pay off the one with the highest interest rate first.
Alternatively they should consider consolidating the debts into a low rate card through a balance transfer offer, or consolidate into a personal or home loan.

For assistance with managing your debt or if you would like more information about debt consolidation loans, speak to one of the financial consultants at Intellichoice today on 1300 55 10 45.

Financial wellbeing index Q3

The Financial Wellbeing Index measures people's financial wellbeing in relation to six focus areas. Here are the key findings in Quarter 3 (September – December 2010)

•  Aussie households have reported feeling less comfortable across the six focus areas of: credit card and mortgage debt, savings, investments, household income and the ability to pay bills.
• Aussies have shown determination to stay on top of their mortgages, with 49% of households with a mortgage making additional loan repayments.
• Credit card debt has increased substantially – up 24% from Q2 to Q3.

the over reliance on credit cards is a worrying trend and we encourage everyone to look to savings as a way to buffer against unexpected costs.

For assistance with budgeting, setting up a savings plan or financial planning for a secure future, speak to one of the financial planners at Intellichoice today.

Australians attitude to debt and savings - a recent survey

A recent survey conducted by RaboDirect has found the following stats:

• About 74% of respondents believe paying off their debt is the best way to save money
• One in five credit card holders worry about not paying off their bill in full each month, yet one in six are happy to make purchases knowing they cannot pay for it in the interest free-period.
• About one third of survey respondents consider their financial situation has worsened in the last year and have taken steps as a result. They have cut back on luxuries, such as dining, entertainment and holidays, and some have also considered their day-to-day shopping habits.
• The survey also found that 28% of Australians say their savings would only last two months if they lost their job
• Just over one in ten (13%) have no savings at all. This paints a worrying picture at a time of the year when the job market traditionally slows down.
• Low interest transaction accounts are the most popular home for ‘savings’ with 46% of regular savers putting money in their transaction account (representing 41% of total savings in last six months). This is despite the fact that interest paid on these accounts is negligible and often eaten away by fees

Below are some tips for better financial management:

• Set a budget and revisit it regularly and adjust as necessary to match personal/financial needs or changes to your finances. eg got married, started a family or got a new job
• Spend less than you earn!
• Pay off your most expensive, non deductible debt, first eg credit cards
• Regularly check that your financial products (such as your mortgage loan, transaction and savings account, insurance, credit cards etc.) suit your needs and offer the best value
• Have your salary paid directly into a high interest savings account rather than leaving money idle in a low-interest bearing account
• Seek help early if things get out of hand - speak to a financial advisor for more help

Make sure you pay your credit card bill in full

Did you know that the minimum monthly repayment demanded by the credit card issuers do not even cover the interest charged? Many banks lower the minimum repayment to below the interest charged so that interest gets charged on interest.

If you are late by one day in making a credit card repayment, interest could be charged back to the date of purchase, negating any interest free days. That can apply even if a partial payment is made. If you don’t pay your credit card bill in full and on time, your next interest free period may be taken away.

If you need help budgeting, managing debt or need a debt consolidation loan, speak to one of the financial planners at Intellichoice for further assistance. Call +61 7 3624 1900 for more details.

Money saving tips

The RBA may have held interest rates for now, but many analysts say we are set for another 2 rate rises by the end of the year and even more in 2011.

Rising petrol and food costs and the threat of sky rocketing inflation means we need to find ways to make the dollar go further.

If you need help with budgeting, savings or managing your debt, speak to one of the financial advisors at Intellichoice today on 1300 55 10 45.

Lower income households likely to miss payments

A new study by credit reporting agency Dun & Bradstreet has found that one in four Australian households indicated they would most likely miss mortgage payments if they found themselves short on cash. The study also found one in three said they will pay bills late in the coming year.

The Consumer Payment Priorities Study, released by credit reporting agency Dun & Bradstreet, revealed many Australians are unaware of the consequences of paying late bills.

More than half of survey respondents said they would be more likely to pay their accounts on time if they knew late payments would be listed on their credit report.

Many people do not realise that a payment can currently be listed on an individual’s credit record if it is 60 days overdue. However, new credit reporting laws which have already been accepted by the Federal Government will allow payments to be listed on an individual record if they are just one day late.

The study also reveals that younger Australians and those in lower income households are more likely to pay their bills late in the year ahead. One in five (21%) older Australians (aged 50-64 years) indicated they will pay at least one bill late – this compares to one in three for the two younger groups (18-34 and 35-49 years).

Approximately 30% of people in high income households ($80,000+) said they expect to pay late in the year ahead, as compared to 37% for households earning les than $80,000.

If you are having problems managing debt, need help with budgeting or have problems with your mortgage, speak to one of the finance advisors at Intellichoice today. Our mortgage brokers can help with a home loan review to ensure your home loan is still the best deal for you. Intellichoice also has professional financial planners to assist with debt consolidation, budgeting and a savings plan.

More Australians are struggling with debt

According to a study by Veda Advantage, one in five Australians are struggling to repay their debt. The biannual Australian Debt Study also found that more than 80% of Australians are worried about their ability to make debt repayments over the next 12 months.

The survey also found that one in seven Australians have missed a minimum bill repayment in the past three months – up from 12% in September 2009. Of those who had missed a repayment, one in ten Australians are looking to take on more debt in the next six months.

A Veda Advantage spokesperson said “this is the highest level of debt stress in the past two and a half years of this study.”

If you are struggling with debt and need help with managing debt, budgeting or debt consolidation, speak to a qualified financial planner at Intellichoice today on +61 7 3624 1900.

Pay down bad debt and focus on the good debt

Many Australians are struggling to repay their debts. According to The Australian, many more are dealing with rising interest rates easily because they have made provisions for the higher repayments, or never lowered their repayments when interest rates were falling.

Experts recommend that bad debt (incurred when a person buys things that depreciate in value, such as a car, shopping or a holiday) needs to be repaid as fast as possible. This type of debt does not help you to increase your wealth. Furthermore, interest rates on credit cards or personal loans can attract between 9 - 20% in interest charges. Good debt on the other hand, such as a mortgage to buy a house, or a loan to make an investment can increase wealth because the assets may rise in value.

If you need help consolidating debt, budgeting, debt management or would like more information about building wealth, speak to one of the financial advisors at Intellichoice today on +61 7 3624 1900.

Aussies are still wary of credit

Despite increasing confidence about the economy, many Australians are still reluctant to increase their credit card debts.

"People are still more inclined to use their own money to make purchases rather than put it on credit," Commsec chief economist Craig James said.

Datamonitor senior analyst Harry Senlitonga said use of Visa and Mastercard debit cards was up 30% in the past 12 months, compared to 6.69% for credit cards. "Debit scheme cards give consumers the best of both worlds - accessibility of a credit card and they allow the consumer to use their own money," said Mr Senlitonga.

Gen Y not coping with debt

Generation Y, (people born between 1980 and 1994), have developed a reputation for not being responsible with money says social researcher Mark McCrindle.

McCrindle says that there has been a big rise in the number of 19 year olds declaring bankruptcy. Many Gen Y’s make good income but waste their money on cars, clothes and leisure/entertainment and are not concerned with investing for their future.

For help with debt management, debt consolidation or budgeting, speak to a financial advisor at Intellichoice today on +61 7 3624 1900.

Pros and cons of a debt consolidation loan

If you have multiple credit card debts, car loans and personal loans and making minimum repayments each month is causing you stress, then you should consider a debt consolidation loan. Before you take out a debt consolidation loan, we recommend that you first speak with a financial advisor to ensure this is the best option for you.

Below are a list of pros and cons for debt consolidation loans:

Advantages of a debt consolidation loan

• One payment to make: Making a single repayment each month is so much easier and less stressful for you. It makes it easier to manage your finances
• Reduced interest rate: The interest rate on a debt consolidation loan will be much lower than the interest rate on your credit cards
• Lower monthly repayments to make: As the interest rate on your debt consolidation loan is lower, the amount you pay each month will also be lower
• Only 1 creditor: You only have to deal with one creditor instead of multiple creditors. 

Disadvantages of a debt consolidation loan

• It may be easy to get into debt again: As all your debt has been consolidated into the one loan, it might be tempting to start using your credit cards again or continue bad spending habits that got you into debt in the first place
• Longer time to pay off your debt
• You may end up paying more over the long term: As the debt consolidation loan term is longer, you may end up paying more interest to clear your debt

Before you get a debt consolidation loan, you should realistically look at the pros and cons to determine if this is right for you. Speak to one of the financial planners at Intellichoice for more information about debt consolidation loan and how we can help you with budgeting and managing debt.

Credit card traps

Differences in the way interest on credit card balances is calculated can cost consumers big dollars. Consumer group Choice found that two consumers with exactly the same transaction history and exactly the same outstanding balance of $2,000 could be paying either $10 in interest or $45, depending on the credit card they are using.

If you one day late or pay less than the minimum required repayment, most credit cards will charge you a full rate of interest on the full balance going back to the date of the original transactions, with no interest free days applying. If you fail to pay your bill on time, most cards will not give you any interest free days on new purchases either.

Aussies in debt again

Australian households are returning to their debt fueled lifestyles after a year of austerity and paying down their debts. According to the Reserve Bank of Australia, personal loans and card debts have been rising for the last four months.

Approximately 25% of Australians expect to increase their debt within the next three months according to a survey by Dun & Bradstreet. Economist Shane Oliver from AMP Capital says people are less worried about their jobs and therefore more prepared to take on debt.

Aussies paying off the credit cards

Australian credit card holders are paying off their card debts faster than ever before.

According to new figures released on last Friday by Mastercard, approximately 70.8% of card debt is currently accruing interest, the lowest level in more than one year. Consumers are also more reluctant to make cash advances on their cards, wth cash advances falling 13% compared to one year ago. The growth in credit card limits has also slowed to just 3.5% in 2009 - down from 12% the year before.

Women get left with the debts

Women are most often the victims of relationship debt, or sexually transmitted debt, which are the names given to debts that are left over after a relationship breaks down.

Most partnership debt is initially racked up by the man in a relationship according to a new study by credit reference service Veda Advantage.

Relationship debt is also a problem in families and between friends. The consumer law action centre recommends getting independent advice before committing to a joint loan or providing security for someone else’s loan.

Aussies put bills on credit cards

Approximately 40% of Australians will rely on credit cards to pay essential bills this quarter. Debt collection agency Prushka said many householders had overspent in the lead-up to Christmas. There has been a 25% lift in the amount of work going to debt collectors.

Reserve Bank figures show consumers spent more than $20 billion on credit and charge cards in November 2009, pushing the average credit card account balance to $3196. According to a Dun & Bradstreet survey, 56 per cent of 18 – 35 year olds expected to use credit cards to pay some of their bills, up 11 per cent on the previous quarterly survey, while nearly half of all families with children thought they'd be paying bills with credit cards - up 8%.

Credit card debt sneaking up

The average credit card balance is AU$3131.00, slightly higher than it was one year ago, according to new data from the Reserve Bank. Approximately 72% of that balance is accruing interest for the cardholder because it wasn’t paid off within the interest free period.

Last year, the average credit card balance was AU$3127 – of which 71% was accruing interest. While debit card use is increasing, analysts say in dollar terms, credit cards still dominate the market.

If you would like help with budgeting, savings and managing your credit card debt, speak to a financial consultant from Intellichoice today. 

3 tips to get your debts under control

Finding a solution to controlling your debts means looking at your lifestyle and being prepared to make some changes. Below are 3 tips to help you take control of your money and debt.

1. Get rid of your credit cards

With all the unsolicited offers of easy credit, loans, store cards and credit cards that come through your letter box every day, getting into debt has become so easy. 

• If you have store cards or credit cards, get rid of them! Store cards in particular have high interest rates
• Get into the habit of using cash instead of reaching for your credit card to pay for items
• Do you really need that item? Think before you purchase

2. Get disciplined

• Stop overspending. Before you buy that new outfit, wait a day to find out if it is something you really need. Putting time and space into the equation can often make you realise that you don’t need that new outfit after all – even if you want it. 
• Never impulse buy. Separate life’s necessities from your wants and desires so you can keep impulse buying in check.
• Write down what you spend. Use a budget planner so you can see where your money goes. Seeing it on paper can make you realise where you are going wrong, and help discipline your spending habits.
• The key to any debt management solution is budgeting and repayment plans. Commit as much money as you can to paying off debts with high interest rates.
  

3. Be pro-active

• Firstly pay off debts with high interest rates or that put your home or assets at risk.  
• Find an independent financial adviser to help you formulate a debt management strategy.
  

For independent financial advice or to get more information on debt management, visit www.intellichoice.com.au or speak to one of our financial advsiors by calling 1300 55 10 45 or email info@intellichoice.com.au

New year resolutions add to wealth

Turning your financial goals into new year resolutions increases the chances of success by up to ten times according to new research from the United States.

The US researchers found that almost half of the people who turned their plans and goals into a new year’s resolution had reached their goal or were still on track with it six months later. Less than five per cent of people who had goals for the year but did not make them into a specific resolution were still on track with their plan.

However, experts warn that the resolutions must be very specific to bring any worthwhile benefit. It won’t work to simply resolve to “cut back on debt” for example.

Popular new year resolutions include saving money – experts suggest setting up an automatic savings plan with direct debits – and paying off debts – experst recommend paying the high interest credit cards off first.

For more information or help on savings plans, budgeting, debt management or consolidating debts, speak to one of the financial advisors at Intellichoice today.

Kick start your finances for the new year

The Christmas break and the quiet January period is the perfect time to get your financial affairs in order.

It can be hard to set time aside during the year and have a good hard look at your finances. That's why the New Year period is ideal as there are usually less distractions and work pressures. While the prospect of getting lost in all the paperwork might seem daunting, it is well worth the effort to review your personal finances and think about what goals you want to achieve and what you want your financial future to look like. Remember, small changes in the way you manage your money now can have big results in the long term.

It can be overwhelming knowing where to start, but below are three key areas where you can start straight away.

Set up a budget
There's nothing complex about doing a simple budget. You can use the free budgeting calculator on the Intellichoice financial planning website to get an idea on your income and expenses and where your money goes.

Check that your debts are under control
While using a credit card can be more convenient then using cash, expenses can quickly add up. You should pay off your credit card in full each month, but if you can't do that, at least try to pay off the minimum amount due so you don't get charged a late payment fee.

If you have too many credit card debts or personal loans, speak to one of the financial planners at Intellichoice about a debt consolidation loan. A debt consolidation loan is a single loan that combines all your debts into one, leaving you with just one repayment.

Review your super
While retirement might seem a long way off, your superannuation is likely to grow into the biggest asset you own after your house. That's why it is important to make sure that you are still on track to achieve your retirement goals. One of the simplest things you can do is to make sure that all your super funds are consolidated into one - so you don't have to double up on super fees etc. You can also speak to one of the financial consultants at Intellichoice about finding lost super.

For more information on how Intellichoice can help you achieve your financial goals for the new year, call 1300 55 10 45 or email us directly on info@intellichoice.com.au.