Australians Spend More On Charge And Credit Cards In May
Spending by Australians on charge and credit cards including advances increased in May according to the Reserve Bank of Australia, who said $19.631 billion was spent during the month.
The amount spent in May on charge and credit cards rose from $17.960 billion in April, whilst the number of transactions was slight higher to, at 131.035 million in May, up from 123.289 million in April.
The figures have yet to be adjusted for seasonality.
The value of transactions for the 12 months between May 2009 and May 2010 rose 10.5 per cent, which is far higher than the average growth rate of the previous five years of 6.8 per cent.
Total credit and charge card balances outstanding rose to $47.430 billion in May from $47.126 billion in April.
Compare with a year earlier, the total value of charge and credit card balances outstanding increased by 7.1 per cent, and represents a smaller rise than the average annual growth rate of 10.2 per cent in the previous half decade.
The average balance held by Australians on charge and credit cards rose by 5 per cent to $3,248 in May, for $3,092 a year earlier, and that increase was largely with the average annual growth rate of 4.9 per cent during the five years to May 2009.
Credit and charge card repayments rose to $19.833 billion in May from $18.806 billion in April.
Repayments improved with the annual rate at 10.2 per cent, compared with an average of 7.3 per cent in the preceding half decade.
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Australian Households Saving More
Australians are saving more with the level of household savings increasing during the June quarter. However credit card have usurped the mortgage as the main type of debt being carried by Australians for the first time in nearly four years according to the results of a survey.
The Melbourne Institute household financial conditions index rose 17.2 per cent to 33.7 in June, up from 28.8 in March.
“Credit card debt overtook mortgage debt as the main form of household debt in June, 36.6 per cent compared to 33.9 per cent. This is the first time since November 2006 that households nominate credit card, and not mortgage debt, as their main form of debt.” Melbourne Institute research fellow Dr Edda Claus said in a statement on Thursday.
51.5 per cent of respondents cited saving for a rainy day as the main reason for their savings, a figure which remains unchanged from the March quarter.
55.8 per cent of respondents cited saving for a holiday or travel as the main reason for their savings, up from 55.0 per cent during the March quarter.
Credit card debt became the main form of debt carried by Australian households, replacing mortgages, and the level of debt rose by 3 per cent to 36.6 per cent.
“About 48.8 per cent of Australian households saved part of their income in June 2010, up from 46.2 per cent in March,” the report said.
The survey results from the June quarter suggest that nearly 75 per cent of Australians own their home outright or hold a mortgage, a figure which declined from previous surveys.
More than 40 per cent of households said they were debt free, while a third said they held mortgage debt, down almost four per cent since last quarter.
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Australian Banks Collect Billions In Fees
Australian banks charged their customers a collective $12.7 billion in fees last financial year, which represents an increase of nine per cent from the previous year, according to new data from the Reserve Bank of Australia.
Business felt most of the burden of the growth in fees, with banks earnings from the sector growing a whopping 20 per cent to almost $2.2 billion despite flat corporate lending growth.
The business sector bore the brunt of the growth in charges, with fee income from that sector leaping 20 per cent to almost $2.2 billion – despite flat corporate lending growth.
A lot of the increase in fees charged to businesses was driven by fees on existing loans, as lenders re-priced their loan books to accommodate higher funding costs the central bank says.
The RBA said businesses that used only part of their loan facilities were the hardest hit.
“Fees on undrawn loan facilities appear to have risen significantly,” the RBA said.
According to the RBA, households paid $5 billion in fees during the last financial year, representing an increase of 3 per cent on the previous year. Fees charged on mortgages and personal loans were the primary driver for the increase.
Fees charged on mortgages leapt 17 per cent to $1.235 billion as borrowers refinanced their loans and switched from fixed to variable rate loans whilst interest rates were falling last year.
Fee income derived from personal lending to households rose 14 per cent, whilst fees earned from unsecured credit card lending increased by eight per cent.
84 per cent of all exception fees levied was paid by households, or almost $1 billion, a figure which was unchanged from the previous year as exception fees on home loans fell by six per cent.
This was offset by a 13 per cent rise for exception fees on personal loans and a 10 per cent increase on credit card fees.
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Citibank Emirates Card Very Compelling Balance Transfer And Frequent Flyer Program
Global banking giant Citibank is currently running an extremely compelling offer on their Citibank Emirates card.
The Citbank card has a great deal on balance transfers, with a rough annual interest rate of 2.9 per cent, and perhaps the best feature is that card holders earn 3 Skyward Miles, which is the Emirates Airlines frequent flyer program for every $1 spent (normally is just 1.5 miles per dollar spent).
The Skyward frequent flyer program is an award winning run program by Emirates Airline. Skywards has consistently demonstrated success in award recognition. Among its many accolades, the programme has been named Best Loyalty Program by Middle East Traveller Magazine.
There are no qualifying criteria for entry into the programme and membership is free. Silver status is earned by earning 25,000 tier miles or flying 20 sectors on Emirates between 1st January and 31st December each year.Gold membership is awarded after the accumulation of 50,000 tier miles or 40 sectors in a calendar year. Tier miles help members to progress to the next tier. They cannot be redeemed for rewards and are only earned when flying with Emirates Airline.
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Half A Million Claimants Expected In Largest Ever Class Action Law Suit Against Australian Banks
Nearly 40,000 bank customers have signed up to what looks like Australia’s largest ever class action law suit, with the initiator of the legal action saying it believes it will register as many as half a million claimants in its law suit seeking reimbursement of “exorbitant” exception fees.
As of yesterday, Financial Redress launched as many as 12 class action suits against a number of banks for nearly $5 billion in fees levied over six years, the number of claimants was 38,378.
James Middleweek, who heads up Perth based subsidiary Financial Redress declined to specify exactly how many claimants had so far signed the funding agreement on the special purpose website.
Bernard Murphy, who is chairman of Melbourne based law firm Maurice Blackburn say that is would take as long as three to four weeks before the first writs could be filed.
“I expect it will be a strong fight (against the banks), but we are armed for the fight, we’re funded and ready to go.” Mr Murphy said at a press conference.
Fronting the claimants was Mr. Matthew Burgess, who says he was hit by as much as $1,000 in penalty fees by his bank Westpac over a two to three year period.
Mr. Burgess receives social security benefit on a fortnightly basis says the fees were incurred after his gym membership fees were deducted from an overdrawn account on a direct debit basis.
“I needed to attend the gym for health and medical reasons, and the fees impacted my ability to feed myself and keep my accommodation,” he said.
“Sometimes it was only a day or two before the account was replenished (with more funds). When I approached the bank, I was referred to my contract. I believe the bank was taking advantage of me. For me, it’s a social justice issue. It’s predatory behaviour by the banks and they need to be held accountable.”
Mr. Burgess added that he was unable to end his gym membership, and was effectively locked into a contract due to the punitive exit terms.
According to Financial Redress’s Mr. Murphy, the company had obtained advice from senior council over what it believes is a simple legal matter.
Mr. Murphy said that banks had the right to charge a reasonable amount for honour and dishonour fees on accounts that are overdrawn, and customers who exceed their credit limit, or make late payments on their credit cards.
“If it’s exorbitant, we win; if it’s not we close,” he said.
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Five Tips For Borrowing Using A Personal Loan
Personal loans can be amongst the cheapest way to borrow, but we can’t help but stress how important what the reason you are borrowing the money for.
If you are looking to finance a new flat screen television or go on holiday, or any other luxury, a personal loan is not your best option. Fortunately the financial crisis has made most people more aware of their finances and changed the way they think about borrowing.
More people are saving to buy life’s luxuries, and we are far less reliant on loans and credit for our spending.
If you need the money for something really important, then borrowing through a personal loan, is far cheaper than through the use of a credit card.
Here are five tips for personal loans.
1. What are your options?
Before starting the whole application process for a loan, you should check whether you have any cheaper options available for borrowing the money.
There are a couple of things you should think about first before borrowing from a bank, You should work out how much cash you really need, whether you can save the amount, and whether you can borrow the money you need from friends or family.
An easy way to borrow cheaply, is to use your credit card and for a small fee transfer the debt to a new zero per cent balance transfer card. For the introductory period, you will not have to pay any interest, but when that expires the amount can start racking up hefty interest, so you should be careful to make sure you know when the period expires, and set up a strategy to ensure you don’t exceed the period, whether that means transferring any balance remaining to a new card or having paid the amount off depends on you.
2. Check your credit rating
If you find that your only option happens to be a loan and have started shopping for one already, you should know that the “typical” low rates aren’t actually offered to everyone.
Lenders who advertise such rates, are not obliged by law to offer those rates to everyone and unsurprisingly only tend to offer them to a small percentage of their customers, who tend to have near perfect credit ratings.
If you don’t happen to have a perfect or near perfect credit history, then you have a very low chance of being offered the best rates in the market. Lenders will either turn you down or offer you the loan at a higher rate.
You should also be acutely aware that how often you apply for loans is noted by borrowers, and if they get a sense that you have tried to borrow money many times in a short period of time, that starts to send alarm bells ringing.
So make sure you apply for a credit report and have an idea of how clean your record is, before starting the application process for a loan.
3. Compare the TARs
Whenever you shop for a loan you should take your time and look for the best deal, as you would do for any other product.
Whilst many of you are familiar with the Annual Percentage Rate (APR), which is the rough rate of interest you pay annually for a loan, you should also be aware of the lesser known TAR.
TAR stands for Total Amount Repayable, and is an accurate indicator of how much the loan actually costs, and sometimes when you find out the true cost of a loan, it can be quite an eye opening experience.
Always check the TAR when comparing different loans with one another; it is the best way to ensure you are getting the best deal available to you.
4. Avoid secured loans!
Personal loans tend to be what is known as unsecured loans, that is to say they are not backed up by collateral. This differs with the secured loan which is backed by collateral such as your car or house.
Secured loans often seem to be cheaper than unsecured loans, but before jumping in, you should be aware that they often come with variable rates of interest. This means you run the risk of having your interest payments spike into something that becomes unaffordable.
They can make sense, but you should be careful to understand what the trend in interest rates happen to be, and whether you run the risk of them spiking before you have paid off the debt.
5. Minimise your term
The best way to keep the cost of a personal loan down is to pick the shortest term you can possibly manage. Doing this ensures you pay the least amount in interest rate charges. Taking a look at the numbers as an illustration. The rule is the shorter you borrow money for, the less interest is charged.
Finally, after investigating TARs you’ve undoubtedly been suitably shocked at how much your seemingly cheap personal loan will cost. Assuming you borrowed $ 3000 at 7.9% APR
Paying back a $3k loan over 5 years would mean a total repayment of $3,641 – $641 obviously being interest.
Repay it over 3 years and it would cost $379 in interest saving $262.
And over 2 years it would cost you just $253 in interest, saving another $126.
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Six Debt Myths Busted
Trying to pay off debt that has piled up can make borrowers feel very scared and vulnerable. Often those who find themselves struggling to pay off a mountain of debt end up fearful over what the future may hold, don’t know whom to turn to or what to do.
That kind of insecurity is usually a result of inability to decide what to do and what the consequence of a particular course of action may be.
Many people confuse fact with fiction when trying to decide how to solve their problems so in this post, we try separate truth from fiction.
1) You could Go To Prison If You Don’t Pay Off Your Credit Card Debt
Total Fiction: You will not be sent to jail if you end up defaulting on an unsecured loan or credit card debt.
The worst legal thing that can happen is you could be issued with a court order that stipulates how much of your income must go towards paying off an individual debt.
If legal action is taking against you by a creditor such as a bank or credit card company, and a judgement passed, that will remain on your credit record for a number of years, which will negatively affect your ability to obtain future financing.
Once the court has ordered you to make a payment, and you still find you cannot make the payment, you will still not go to prison, but the court may require your employer to make the payment on your behalf by deducting it directly from your salary.
Alternatively the court may issue another order which allows the credit card company or bank to take some the of the sale proceeds when you sell your house. These type of court orders are not that uncommon, however the order does not require you to actually sell your home, only that when you do ultimately sell your property, the creditor has the right to receive some of the proceeds.
2) Credit card companies Can Send Bailiffs To Collect
Another old wives tale is that credit card companies can send their bailiffs round if you are a habitual defaulter and miss payments continuously.
This is nonsense, card companies do not have the right to send a bailiff to your home, if someone from a card company threatens you with that kind of action, you should simply not believe them.
Card companies can apply to the court to send a bailiff round, and can only make that application once a judgment has been passed against you. Before the court has passed judgment, the only thing a card company or creditor can do is hire a debt collector who can try and collect the money owed, but the debt collector has no legal authority, so you are not even required to speak to him.
3) Bailiffs Do Not Have The Right To Force Their Way Into Your Home
This is not true, ordinarily bailiffs do not have the authority to force their way into your house to take your belongings. They can however apply for a warrant to force entry, though in practice this is very rare.
If you end up behind on rent or mortgage payments, your landlord or mortgage lender may obtain a court order to force eviction. In that situation, bailiffs have the power to break in to your home. Bailiffs also have the right to break into your house if they have previously been given permission to enter your home, and you have failed to stick to a debt repayment arrangement.
In general though, bailiffs have a code of conduct that they must adhere too. To begin with, they must provide their identification and authorization if they are asked for it. If they are collecting rent, they are required to only attempt to do so between sunrise and sunset and in practice, really between the hours of 8am and 8pm.
4) A Bad Credit Ratings Is For Life
This is untrue, bad credit ratings usually last a few years, in most developed countries, no more than six to eight years.
5) You Need To Pay For Debt Advice
This is complete fiction and is a debt rip off. Some lenders will try and charge you for advice, and there is absolutely no reason why you should be paying anyone any money for advice, because it can be gotten free from a number of debt counselling organisations who will provide guidance on a range of options to suit your personal needs and help you with your debt problems. So don’t pay for something you can get for free!
6) If You Die Your Family Will Have To Pay Your Debts
This is mainly false, but has a little truth to it. In general, your family are not liable for your debt in the event of your death. If however you have borrowed money jointly, with your spouse for example, then that person is liable for all your joint debts in the event of your death. The person however will also end up with full ownership of any asset that the debt was used to acquire, for example property.
If your estate has sufficient assets to cover all liabilities, that will be done by the executors of your estate. If there is a remainder after settling all outstanding debts, that will be distributed, and if your estate is not large enough to cover your debts, then what ever remains is usually written off.
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Nine Credit Card Pitfalls
No matter how responsible you are when it comes to credit cards, they still come with a number of pitfalls. As soon as you navigate your way past one, yet another emerges. Here are 9 credit card pitfalls.
1. The Debt That Never Ends
The minimum payment on many credit cards barely meet the interest being incurred on your debt, which means if you only ever make the minimum, you’re debt will never reduce and seem to be endless. Occasionally a card will be offered with such a low minimum monthly payment, that your debt ends up actually growing.
So if you want to ensure that your debt ends up being a thing of the past, then make sure you make payments well in excess of your minimum monthly payment.
2. Negative Payment Hierarchy
Perhaps the single most important thing when it comes to understanding your credit card debt, is the concept of negative payment hierarchy.
Simply put, when you make a payment towards your debt, the money is used to pay of the debt which is attracting the least interest, whilst the debt that incurs the most interest is left unpaid.
So for example if you have part of a balance on a zero per cent transfer deal, and the rest attracting interest at 18 per cent APR, and you make a $500 payment, thinking you will reduce your debt, well that money goes towards your zero per cent deal, whilst the balance that costs 17 per cent continues to remain unchanged and attracting interest until the full debt is paid off.
The easiest way to avoid this pitfall is to have one card for your balance transfer and a separate card which you use for purchases. That way you can isolate which debt is paid off whenever you make a payment.
3. The Hidden Cost Of Balance Transfers
Balance transfer deals are unquestionably a good way of reducing your overall cost of debt. But they do have hidden costs, for example through NPH a 3 per cent fee for a zero per cent balance transfer might on the face of it seem very reasonable, but might actually mean an APR of 4 to 11 per cent.
If you want to ensure you have a low APR, you should look for longer deals with lower fees. Save your money in an account that pays reasonable interest, and pay the entire balance off at the end of the offer.
4. Balance Transfer Fees Can Cost Interest
When you transfer a balance onto a zero per cent card, the fee is usually added to the balance, but some lenders may class the fee as being a purchase and charge you interest on the fee and because of NPH, the fee will continue to incur interest until the whole balance is cleared.
So make sure you read the fine print, understand the terms of the deal, and kick up a fuss if something like this happens when it shouldn’t.
5. Typical APRs Not Obtainable
Typical APR’s quoted by lenders are only ever offered to customers with the best credit score, and for most people lenders offer APR’s which can often be much higher than the typical APR quoted.
Some lenders may even reject the application outright, and pass the details on to a less than savory lender who will make the loan.
If you have been rejected, then do not take out a product offered by a third party, and make sure you check your credit report for any errors.
6. High Increasing Standard Rates
Even if you manage to obtain the typical APR, they are exorbitant at the best of times, and can average as much as 10 per cent above the cheapest personal loans, and lenders can hike interest rates at will. So always keep your options open, and if you can, balance transfer the debt and take advantage of low interest rates.
7. Calculating APR
Lenders can calculate their interest in different ways, and some estimate that there are as many as 12 different methods, which means APR’s can have very little meaning.
The best way to avoid this is the age old zero per cent balance transfer, but you should also seek to avoid cards which have lots of fees and charges.
8. ‘Cheap’ Monthly Interest
Cheap monthly interest rates are disingenuous. In fact I would go as far as to say they are outright fraudulent. A monthly interest rate of 1.5 per cent might seem like a good deal, but in actual fact it adds up to 19.6 per cent APR, which is far higher than the average rate. So make sure you are not taken in by cheap monthly rates.
9. Credit Limit ‘Rewards’
Some lenders may say they are rewarding you by increasing your credit limit. You should be careful not to see your new limit as a target for spending, and add to your debt burden for no reason.
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Nine More Credit Card Pitfalls
In the first part of this series we looked at nine credit card pitfalls. As we said previously, even for the most responsible users credit cards represent a minefield so here are nine more pitfalls you should be aware of.
1. Over-Priced Protection
Insurance offers that credit cards tend to present are horribly over-priced. You should avoid signing up to these and instead look on the internet for a better deal.
Stand alone insurers offer policies at sometimes even 1/10th the price a credit card charges, and this is true for moth types of fraud or theft insurance that you would normally obtain from your credit card lender.
The law also offers fairly good protection against fraud or theft limiting your exposure fairly heavily.
2. Insurance You Did Not Buy
Some lenders have few misgivings about charging you for insurance you did not actually buy, or even went as far as declining to buy.
If you find this happens to be the case, you should take your application form to your lender and show them as evidence when you lodge a complaint.
3. Small Mistakes Lead To Bigger Mistakes
Missing even one payment deadline is enough to incur a charge. If the late payment was really just an oversight on your part, you should call your lender and appeal the charge. If the appeal fails, you can always switch lenders, but the best way to avoid the problem is establish a direct debit.
4. Don’t Use Your Credit Cards For Withdrawals
Cash withdrawals using your credit card or cash advance attracts hefty fees and is not a cheap way to access or borrow money.
Using your credit card for a withdrawal incurs a fee of 2.5 per cent of the amount withdrawn, and the cash advance itself can have APR’s as high as 25 per cent with no interest fee period.
Do not use your credit card for withdrawing cash.
5. Credit Cards Are Not Cheques
Credit card account cheques are just an expensive method of obtaining cash as credit card withdrawals, with similar upfront fees and APR’s and again no interest free period, so again avoid using them at all costs.
6. The Price Of Rewards
Credit card lenders love to offer rewards to their borrowers, because from their perspective they are a good way to attract new customers and encourage existing customers to spend using their card, which means it is profitable to run a rewards program.
If you sit down and add up the value of the rewards you are receiving, compared to the interest you actually pay, you will more often than not find they do not offer very much value relative to their cost.
7. Admin Fees
Some credit card lenders have the wherewithal to charge you administrative fees for moving home and changing your mailing address with them. If you find this is the case, there may be very little you can do, but you should express your displeasure and kick up a stink. The lender may decide to forgo the fee.
8. Penalties For Being Debt Free
Some lender will charge you a monthly fee for not using your card or incurring debt. Some even charge customers for carrying a positive balance, so you really should watch out for this, its terribly unfair.
You should use your card when buying things on the internet or when making big purchases. They give far more protection than a debit card alone. Just remember to make sure your whole bill is paid.
9. Playing For Time
Credit card lenders are not always consistent with when they send you your statement, sometimes moving it closer to your payment deadline, leaving you less time to make your payment.
The best way to avoid this is to have a direct debit set up, and even better, if you can pay your bill off in full every month, most of the problems can be avoided.
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Four Current Account Mistakes
Many of us who use current accounts for our primary bank account make a number of common mistakes, thinking that it is nothing more than a place to stash one’s cash. Used in the correct manner, the humble current account can be so much more than that. Used in the wrong way it can prove very costly, resulting in having to hand over lots of cash to your bank for no reason.
Here are four current account mistakes to avoid.
1) Do Not Be Ruled By Overdraft
Your overdraft should not merely considered as spending money. If you do run an overdraft, you should make every effort to pay it off.
If you do however have a need to run an overdraft, then you should make sure you prearranged one with your lender, with a set limit that you know you can stick to. For example if you know you are going to spend more than $500 a month on your overdraft, there is no point in agreeing a $500 overdraft with your bank, not unless you prefer being hit with higher interest charges and fees.
Similarly, make sure you’re getting a competitive deal on your overdraft – preferably by finding an account that doesn’t charge any interest at all.
2) Don’t Ignore The Interest Rate
Some people believe that the interest on their current account is not relevant, but why receive no interest on your deposits, when there are some banks out there willing to pay you interest on what you do hold in your account.
These days Australian lenders are fighting an increasingly competitive war for depositors as they seek more stable sources of funding, so it’s worth checking out which current account deals are on offer.
3) Don’t Pay For Extras You Don’t Need
A lot of current accounts come with extra perks, such as airport lounge access, travel and mobile phone insurance.
What most people fail to understand is that these perks come at a cost, that can be as much as $300 a year. Before you commit to these perks, which often sound quite tempting, you should find out how much having access to them will cost you, and whether that cost is actually worth it.
For example you may want to find out whether the insurance you receive with your current account covers your needs, or whether you can save money simply by applying for insurance when you need it.
4) Not Using Direct Debit Facilities
One of the biggest advantages of a current account, is the ability to set up direct debits that pay your bills off on time.
Direct debits not only help you remember to pay your bills, but can save you a ton of money. For example setting one up to pay your monthly credit card bill means you never miss a month’s payment. Failing to pay a monthly credit card bill is a very common mistake and usually results in being charged additional fees, and in the worst cases, even have you card cancelled.
Paying utility bills such as electricity through direct debit can in some cases also result in your provider doling out discounts.
Direct debits are also a great way of saving money, in effect transferring money you want to save every month from your current account to your savings account.
So make sure you take advantage of the facility.