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NAB To Cease Credit Card Negative Payment Hierarchy
One of the worst features of credit cards is what is known as negative payment hierarchy. An example of this if the borrower undertakes a balance transfer to a zero balance account, the interest on the balance transfer is zero, whilst if the borrower uses the same card to make a new purchase, that purchase will attract interest.
Negative payment hierarchy is when credit card companies use any payment made to pay off debt which is accruing at low or zero interest, whilst the debt which carries higher interest continues to accrue charges at the higher rate.
Australian banking major NAB is seeking to end its practice of negative payment hierarchy, and has flipped it on its head by allowing its borrowers to pay off their higher interest debt first.
Negative payment hierarchy is an industry wide practice according to NAB personal banking group executive Lisa Gray.
“This will no longer be the case for NAB customers, credit card transactions attracting the highest interest rate will be paid off before the lower interest rate, helping to reduce the overall interest cost to our customers.” Ms. Gray said.
The changes imply that all balance transfers will shift to the lower interest rate at the end of the introductory period, which will reduce the interest charges for borrowers.
The new systems will apply to all NAB consumer and commercial credit cards, which total about 1.5 million accounts, the bank said.
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RACQ Warns Australian Motorists To Watch The Price Of Petrol
“Cheap Tuesday” used to be the best day to fill the petrol tank, however that is now slowly changing with “savings Sunday” becoming the prime day to fill up the fuel tank.
For many years, Tuesday was the best day to top up one’s fuel tank, as a result of a fuel cycle set by companies. However the oil companies in a bid to maintain revenues began varying which day was the cheapest to obtain fuel, as they sought to keep consumers off balance.
For example in Queensland, cheap Tuesday eventually became frugal Friday, and ultimately ended up becoming savings Sunday.
The RACQ has warned motorists in Queensland to closely monitor the price of petrol quoted on service station price boards, as a means of avoiding paying too much for fuel.
“We’ve seen the low point in the region’s weekly price cycle progressively move later into the week in recent months. Buying petrol mid-week could mean paying around 10 cents a litre more than topping up over the weekend. They’re trying to confuse motorists as to what the cheapest day of the week is.” RACQ spokesman Gary Fites said.
Mr. Fites added that as the pricing pattern shifts accelerate, there is every reason to believe that cheap Tuesday could make a return.
“It’s more important than ever for motorists to watch the price boards if they want to fill up at the best price,” he said.
“The good news for savvy buyers is that regular unleaded and E10 petrol prices are almost at wholesale levels on the cheapest days.”
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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.
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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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Three Ways To Save A Bit Of Cash In A Low Interest Rate Environment
With governments globally raising income tax rates in their response to fiscal deficits run up during their attempt to deal with the financial crisis, it is becoming increasingly difficult to save.
In Australia, fortunately the government so far has yet to raise tax rates, the top marginal tax rate is the same as it was last year however it is still at a hefty 45 per cent.
Australia is indeed one of the few countries that has not aggressively raised taxes, whilst at the same time has also begun tightening monetary policy, so interest rates are no longer at near half century lows.
If however you find yourself living in a place where like the UK for example, the top marginal tax rate has been raised to 50 per cent, whilst the bank rates are less than half a per cent, then clearly difficulties in obtaining returns on one’s savings does become a problem.
Those seeking returns are therefore being extremely inventive in sourcing methods to beat their savings problems, using offset mortgages, cash back credit cards, paying private school fee upfront.
Here is how it works
CASHBACK
Low bank interest rates are not the main problem in Australia, with the official cash rate at 4.25 per cent, and many lenders offering term deposit rates well in excess of that level. But for those who want easy access to their cash, and want to find a way of making some savings at the same time, then a cash back card is a good idea.
Many lenders seem to offer better rates for spending money using their credit cards, in some countries it is more profitable to spend on a credit card than using your savings.
The card issuer typically offers a cash back rate of something like 1 per cent, when you spend money using your credit cards with participating retailers.
The big advantage is cash back spending is tax free, so if you live in a place where the bank rates are puny, and a 1% cash back rate is competitive relative to the interest on your savings, then it makes sense to use the card to spend, not only do you earn cash back, but that is not taxable, unlike the cash sitting in your savings account.
OFFSET MORTGAGES
For those income earners who find themselves in the top tax bracket, holding a mortgage and a savings account, now would be a good time to enquire about the possibility of switching your mortgage over to an offset deal.
Offset mortgages work by simply offsetting the borrowers savings against their mortgage debt, with interest accruing on the remaining balance.
This means that the mortgage debt is paid off far earlier than otherwise would be, with the interest only accruing on the remaining balance, which is far less than the tax payable on the same amount.
The best thing about offset mortgages is the fact that cash balances can be accessed whenever you have the need to dip into them.
Ann offset mortgage allows the borrower to earn tax free interest on their savings at the same level as the mortgage, and is very useful for top rate taxpayers, who have a decent amount of savings.
PAY SCHOOL FEES UPFRONT
If you are sending your children to private school, then one way to save cash and reduce tax is pay the fees upfront. What the school will tend to do is place the money in a separate account, which is supposed to protect you from any closure or bankruptcy.
The school places the money in a deposit and returns the interest earned from the deposit in the form of discounts. Most schools have charitable status, so their interest income is tax free, which has the effect of the discounts often being far better than the interest received were the money held in a taxable savings account.
Bursars report increased interest in paying fees in advance, thereby netting a higher effective return than on cash deposits. Your money tends to be kept separate from a school’s financial affairs, so it should be protected if it closes or gets into difficulties.
When you pay upfront, the school puts the money on deposit and passes back the interest earned in the form of discounts. Schools earn interest tax-free thanks to their charitable status, which means the discount is often far better than the interest you would receive on a taxed savings account.
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Money For Nothing – The Chicks Aint Free
If you were to approach the manager of your local branch and ask him or her how to get free credit, the chances are not very high that they will fork over the information so easily.
Of course it is completely possible to borrow money interest free, and we will explain three methods of doing so.
In life when someone offers you something for free, that is usually the signal to start paying attention and find where the catch is. So whilst we seek to let you know how to borrow money for nothing, you should also be aware of the pitfalls associated with each method.
If you do not mind your finances properly, these methods of borrowing can lead you deeper into debt. So do be careful.
If you’ve been hunting through the personal loans section at your bank, you won’t have found these options. In fact, providers don’t label them as ‘loans’ at all!
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Three Tips When Shopping For A Personal Loan
When used properly, personal loans are a great way to meet any funding shortfall that you may have. That is to say, forget about using them to pay for holidays or whatnot.
Funding luxuries are not the best way to use a personal loan. But if you have a genuine need to borrow $10,000, or an amount that a credit card is just not going to cover, then a personal loan is the product for you.
Here are three tips when shopping for a personal loan
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Three Benefits Of Using A Credit Card
Most of the personal finance pieces you read on credit cards are usually centred on mistakes made using them, and the great evil of carrying too much debt. In actual fact a credit card, if used correctly, can be an extremely useful thing to have, and can have a number of advantages.
So why so much online angst over credit cards? Well the very real overwhelming fear that most people have of being in over their head in debt. Others worry that having a credit card, whilst not resulting in too much debt, may lead them to spend more money than they ordinarily would.
A lot of people who don’t have credit cards, just don’t see the point or any benefit from owning one. So the purpose of this piece is really to show how credit cards, if used correctly can be really beneficial.
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