Growing Trend Of Medical Tourism May Be An Alternative To Health Insurance
During the last US Presidential election both democratic candidates, the then Senator and current president, Barack Obama, and his democratic rival Hillary Clinton made health care in America a priority election issue,. Both candidates threw around large numbers number ranging in the tens of millions of numbers of middle class Americans who either lacked health insurance all together or were under insured.
Rapidly escalating health care costs have caused the uninsured and the companies that do offer health insurance for their employees to start considering options for treatment, which go beyond the scope of domestic borders, and are increasingly geared towards lower cost solutions in developing world countries such as India.
In fact some of the best hospitals in India are now competitive with or even exceed their rivals in the developed world in terms of safety and quality. One estimate, according to the Economist Newspaper suggests that Americans can save up to 85 per cent by looking at lower cost alternatives overseas, and that the number of ‘medical tourists’ would increase from under 1 million in 2007 to 10 million by 2012
McKinsey, a consultancy, has estimated that “medical tourism” could bring India an additional 50 billion-100 billion rupees ($1.1 billion-2.2 billion) in annual revenue by 2012, and the healthcare industry as a whole in The US could be deprived by as much as $160 billion in annual business by the global medical outsourcing business.
The coming boom is not viewed as boon universally however, critics suggest that a deluge of foreigners into emerging market healthcare systems will cause money and expertise to flow away from domestic state owned healthcare systems. Doctors currently employed by the state will move to the private sector which means that resources normally devoted to ordinary people will be lost. Others suggest that medical tourism is nothing more than a band aid which removes attention from the true nature of the problem in the developed world, the need to cuts costs and improve quality.
‘Medical tourism’ itself has been around since the dawn of civilization, the ancient Egyptians used to travel remote retreats for treatments for centuries and that practice has turned into what we know today as being ‘medical tourism’.
A report by professional services firm Deloitte reckons that approximately 150,000 Americans sought treatment overseas in 2006, with the majority doing so in Latin America and Asia. The number of Americans seeking treatment overseas in the following year increased fivefold and grew to an estimate 750,000 in 2007, and the report suggests that the number could reach as high as 6 million as soon as 2010.
The shift towards seeking lower cost alternatives with high quality health care providers in emerging markets such as India is hardly surprising given the economic downturn. In fact according to the Deloitte survey , 40 per cent of Americans are willing to travel if they can save 50 per cent or more on their health care expenditure.
Britain and Canada, both of whom operate nationalized health care systems have as a result suffered from overloaded healthcare systems, which have resulted in long waiting lists. In some cases patients who require an elective procedure need to wait between six to twelve months in the UK and Canada, which can cause the patient severe pain and other symptoms.
According to Prathap Reddy, cardiologist and founder of Indian hospital chain Apollo Hospitals, if a patient has to wait six months for a heart bypass, they may no longer need it anymore.
In 2003 according to the Economist, 50,000 UK citizens sought treatment overseas, and the trend seems to be following that of the US, with the Newspaper suggesting that by the end of this decade 200,000 will do so, creating a market worth a £886 million market.
India as a medical tourism destination is dwarfed by its much smaller rival Thailand, but it looks well equipped to compete for the business of providing health care to patients from OECD countries. There are on a macro level an extremely large number of highly qualified doctors, and a large number of Indian diasporas who may combine seeking treatment with visiting family. There are nearly 1.5 million people of Indian origin in Britain alone.
Harry Srivastava from the Confederation of Indian Industry says India has competency and is cost effective at every level of healthcare, from new drug discovery and testing to surgery, and the obvious solution for patients in the developed world is to outsource their medical requirements. Patients can save anywhere from between 50 to 75 per cent of the cost of treatment. A surgery which costs US$60,00 in the US could cost as little as US$6,000 in India.
Apollo Hospitals Dr. Reddy believes the big opportunity lies in what he calls “disease management “ Joint replacements, heart bypass and cataracts. Dr. Reddy also sees opportunities in elective treatments such as in-vitro fertilization and cosmetic surgery. India already posses a vibrant health tourism industry offering alternate medicine such as Ayurveda, yoga and massage.
Whatever the benefits, politically speaking it is hard for HMO’s or the NHS to be seen to be sending their patients to a third world country for treatment, and India as a destination still has an image problem compared to rivals such as Thailand despite launching an advertising campaign.
The poverty in India at times makes even its resident squeamish sometimes about the notion that foreigners can come to the country and obtain the best facilities whilst its own citizens lack even basic healthcare. Despite the macro numbers, India has only 51 doctors per 100,000 people, which compares with 279 per 100,000 in America.
Whatever the view, as an industry medical tourism, like its better known cousin software exports, will bring new money into the country, and finance a shift in allocation of resources which would only be beneficial to India’s poor. Though in the short run it has its issues some of which may be unpleasant, overwhelmingly in the long run, it will most certainly provide large benefits to patients, both the poor in India and the rich from overseas, and the trend is more the likely going to continue and grow.
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Nine things To Know About Balance Transfers
The obvious solution for a borrower who has incurred a lot of debt on high interest credit cards is to transfer the balance to card which bears a lower interest rate. Though it sounds really simple there are certain things borrowers should be aware of, otherwise they may find they have replaced one Faustian deal with another.
1. Get A New Card To Pay Off The old.
Transferring a balance from a higher interest card to one which charges a lower interest is essentially paying of an existing credit card with a new one. The only real benefit of a balance transfer is if the borrower seeks to pay of the older debt at the new lower interest rate.
2. Consolidating Debt Simplifies Payments.
Balance transfers serve another important function, they enable and help borrowers consolidate debt which may be carried on multiple cards from various issuers on to a single card at a lower interest rate. Have a single or very few statements every month, with only a few payments being made enable consumers to maintain control over their credit utilisation, the proportion of their credit limit they are using, it enables them to rein in spending and keep closer control of finances if they are able to get an accurate picture because there are very few statements to look at.
3. Borrowers Can Transfer Other Kinds Of Debt.
Certain credit cards offer deals for balance transfers from different sources and not just other credit cards. Borrowers may be able to move car loans, loans for appliance and other monthly instalment balances on to a zero per cent balance transfer credit card. It is worth shopping around for cards at various issuers and finding cards that offer these kind of deals.
4. Fees Are Inevitable.
Borrowers should not expect that transferring a high interest loan to a zero per cent card will mean they are not immune from fees. Balance transfer cards almost always charge a balance transfer fee which is levied as a percentage of the total amount of debt being transferred. Therefore borrowers should calculate the cost of transferring any outstanding balances inclusive of fees and compare it to their interest rate fees should they continue to carry it on their existing card and make regular payments. In some cases it may not be worth doing it.
5. Transfer Rates Expire.
Zero per cent balance transfer cards seek to attract borrowers with low interest rates. These rates are introductory and do not last forever. Often they are only valid for between six to nine months. Once the introductory offer expires, interest rates can revert back to as high as the rate of the card that the balance was transferred from. If a borrower does undertake a balance transfer, they should seek to take as much advantage of the introductory interest rate as is possible and try and pay off their balance before the rate reverts to standard interest rates. If they fail to do so once the fee for transferring the balance has been included the whole exercise may end up costing them more in interest rates and fees than had they not undertaken the exercise to begin with.
Borrowers should also be aware that balance transfer deals can be lost altogether if they make the mistake of making a late payment.
6. Great Transfer Rates Do Not Apply To Everything.
Balance transfers usually apply only to the amount that is transferred to the new card, and does not mean that new purchases made with the balance transfer card will incur a zero per cent finance charge. A lot of cards though do offer interest free periods for new purchases, but in general balance transfer cards will not provide that kind of financing. Borrowers should read the fine print of their credit card contract to see whether there are rules which specify only transferred balances incur zero per cent interest, whilst newer purchases incur interest at the regular rate.
It is helpful to keep a different card just for new purchases, one on which no balance is transferred or carried and offers attractive interest free periods. Some balance transfer cards do offer introductory interest rates for new purchases, but the borrower needs to have checked the fine print to have made sure, this is the case, and they should know how long the introductory periods are valid.
7. Borrowers Do Not Always Have Power Over How Their Payments Are Allocated.
Borrowers should not expect to be able to make payments to their higher interest debt. Some card issuers have a negative payment hierarchy policy, which means that the oldest debt gets paid off first, so if a borrower makes a purchase on a balance transfer card, and has existing debt which incurs zero per cent interest, whilst the new purchase incurs say a 109 per cent interest rate. Then any payment made on the card, goes towards paying of the interest free balance first rather than the interest bearing purchase. This is known as negative payment hierarchy and borrowers should strive to be aware whether the issuer has this kind of policy.
Having to separate cards from different issuers for new spending and carrying balances at zero or low interest rates is an easy way to avoid this problem.
8. Borrowers Should Not Expect To Transfer Again and Again.
Borrowers who think they can continue transferring balances and maintain high debt levels perpetually at low interest rates will be disappointed. Lenders tend to take negative views of borrowers who consistently carry high debt levels. Lenders taking a negative view means that the consumers ability to borrow can become limited.
Also such behaviour can in certain cases have a negative effect on credit scores.
9. Borrowers Must Have Good Credit To Qualify.
Zero interest balance transfer cards were once widely available. In the wake of the global banking crisis and rising default rates all over the developed world, they are now harder to come by and usually available only to those with good or excellent credit. If you can qualify, and if it’ll save you significant cash or help you pay off your debt sooner, it might be the way to go.
RBA Governor Leaves Door Open To Cut Interest Rates Further
The Governor of the Reserve Bank of Australia Glen Stephens gave himself the option to cut interest rates further whilst making a speech on the relevance of monetary policy on investor and consumer confidence.
During a speech to the Canadian Chamber of Commerce Governor Stevens posed the question “Do the changes still matter for confidence? I think they do to some extent and that is a factor to keep in mind for the month-to-month tactical decisions,”
Earlier this month the central bank left official interest rates untouched at 3 per cent after having aggressively cut interest rates by 425 basis points to half century lows. During his speech Governor Stevens also said that both countries, Canada and Australia had clearly slipped into recession. Both countries have a high dependency on primary industries such as the export of raw materials.
Governor Stevens went on to add “there are good grounds to think that both countries should be in a relatively good position and well placed to take part in a renewed international expansion. It is too soon to say this is beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year. That said, most observers think that the early part of any new global expansion will be characterised by pretty slow growth.”
The central bank’s comments were in line with the RBA’s previous quarterly statement which forecast average growth of 0.5 per cent in the Australian economy during the next fiscal year which would then increase to 2.25 per cent in the year beyond next fiscal.
Governor Stevens when responding to questions said the forecasts were not sanguine and that the RBA had adopted a cautious approach when making its forecast.
“It is quite feasible to expect above average growth for a number of years at some point during an economic upswing. Exactly when that is and by how much no one really knows, but I don’t think it is crazily optimistic.” Mr. Stevens said.
Government Accuses Opposition Of Wanting To Privatise Australian Health Insurance
The Commonwealth Government’s Minister for Health Nicola Roxon, has suggested that the opposition wants to privatise low income earners health insurance, which would make it far more expensive for low income earners to obtain health care.
Ms. Roxon said that the leader of opposition wanted to force people on low incomes to purchase private health insurance.
“The reason that Mr Turnbull wants to get rid of private health insurance measures that the government has proposed in the budget is because he believes, and has explicitly said, that every Australian should have private health insurance. What that means is that every pensioner, every veteran, every family no matter what their income should have private health insurance.” ,” Ms Roxon told reporters in Melbourne on Saturday.
The Health Minister lambasted the previous John Howard led government for using its time in office to attack public hospitals and blasted , and then accused the opposition liberal party of trying to migrate people from public to private health insurance.
Ms. Roxon said that the Kevin Rudd led government had implemented measures which made it quite clear that top wage earners, the people who could afford it the most, or couples earning over $240,000, would have to contribute a greater share towards private means of health insurance.
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Australia Looks To Super Funds To Finance Infrastructure Projects
A Federal Government consultative committee is looking at different methods of developing investment methods which would give super fund’s the ability to invest in infrastructure projects announced during last week’s budget, which would cover any shortfall that may occur.
Infrastructure Australia will pass on its recommendations to the government which is to include offering incentives to super funds to invest in public infrastructure projects.
The advisory group will be looking at proposals to turn infrastructure projects into public-private partnerships, which would allow super funds to accelerate tax depreciation, provide tax incentives and allow the government to sell super funds infrastructure bonds.
Such incentives would probably lead to fees such as toll roads and congestion charges to mitigate the profitability of public roads and railways.
Infrastructure Australia’s executive Director Brendan Lyon in an interview with The Australian Newspaper said that the amount of funding required for announced infrastructure projects was beyond what the government could reasonably provide.
“Australia has the fourth-largest pool of superannuation savings in the world, so we have to evolve to a model that harnesses this money to build infrastructure for the future. This must not mean treating superannuation as a piggy bank to be raided for infrastructure purposes through mandated levels of investment – super funds must always be invested on commercial terms and for commercial purposes,” Mr. Lyon said..
The Federal Government has apportioned a total of $22 billion over the next four years to finance infrastructure projects, which falls short of the total cost of $80 billion, according to figures compiled by KPMG.
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Five Different Types Of Life Insurance Policies And What They Mean For Individuals
Life Insurance is an extremely dry topic at the best of times, and everybody at some point will have been pitched for a policy. Individuals need to take the time to establish whether it is something they need, and like with things that tend to be boring, but important, the sooner the better, otherwise it may be too late.
Not everyone needs to buy life insurance; it fulfils specific purposes which may not be required. For those people that do need to have some kind of life insurance policy they need to be careful about taking out a policy which fulfils the individuals needs and provides the security in death or retirement that the individual needs. Here are a number of things to consider.
Does The Individual Need Life Insurance?
The answer to this question depends, ironically, on whether anyone depends on the individual.
Individuals who have families they support, children wives or husbands, probably do need life insurance, because those people often depend on the individual financially and the loss of the main bread winner should be insured to some degree.
Even for those individuals that do not work, housewives for example, provide for families in a way that cannot really be quantified properly, raising children, keeping house, doing the cooking are all functions that are extremely important and therefore in a family, both parents or husband and wife should be insured.
One of the main reasons for taking out a life insurance policy is when spouses hold a joint mortgage, and may have trouble making payment in the event the other spouse dies. Having an insurance policy will go a long way to making sure that homes are kept and obligations to the bank are met.
Types of life insurance
There are three key types of life insurance:
1) Level Term Assurance.
This type of life insurance lasts for a specified period which needs to be renewed at the end of each term. After that period, the insured can either drop the policy or pay annually increasing premiums to continue the coverage.
In fact every time the word term is used in the context of insurance, then it means the insurance is only valid for the duration of a term.
A version of term insurance which is commonly purchased is annual renewable term (ART). In this form, the premium is paid for one year of coverage, but the policy is guaranteed to be able to be continued each year for a given period of years. This period varies from 10 to 30 years, or occasionally until age 95. As the insured ages, the premiums increase with each renewal period, eventually becoming financially unviable as the rates for a policy would eventually exceed the cost of a permanent policy. In this form the premium is slightly higher than for a single year’s coverage, but the chances of the benefit being paid are much higher.
The simplest form of term life insurance is for a term of one year. The death benefit would be paid by the insurance company if the insured died during the one year term, while no benefit is paid if the insured dies one day after the last day of the one year term. The premium paid is then based on the expected probability of the insured dying in that one year.
Because the likelihood of dying in the next year is low for anyone that the insurer would accept for the coverage, purchase of only one year of coverage is rare.
One of the main challenges to renewal experienced with some of these policies is requiring proof of insurability. For instance the insured could acquire a terminal illness within the term, but not actually die until after the term expires. Because of the terminal illness, the purchaser would likely be uninsurable after the expiration of the initial term, and would be unable to renew the policy or purchase a new one.
This issue is frequently overcome by a feature in some policies called guaranteed re-insurability included on some programs that allows the insured to renew without proof of insurability.
Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.
In terms of payout in the event of a death, dependants receive a lump sum payment from the insurer. The amount is constant or level and stays that way for as long as the policy is in effect. Payouts can be changed or negotiated once the term expires, obviously a larger premium, resulting in a larger payout.
2) Decreasing Term Assurance.
As the name suggest the payout from this type of insurance decreases as time progresses and is best suited to borrowers such as mortgage holders who are concerned that the debt should be paid of in the eventuality of their death. Since the amount owed decreases over time, it makes sense for those individuals, worried that the debt should be paid off, to have a policy which also has a decreasing payout as time progresses. Obviously as the payout decreases, so too does the premium that needs to be paid.
This type of insurance is best suited for borrowers on repayment mortgage deals. For those on an interest-only mortgage deal, decreasing term assurance would not suit them, since instead of gradually reducing the amount owed each month, individuals only paying the interest on that debt, and therefore the size of the debt stays the constant. That means for those types of borrowers wanting to ensure that in the event of their death their debt is paid, then the payout level needs to stay constant as well..
3) Whole of Life Assurance
Whole Life is a life insurance policy that remains in force for the insured’s whole life and requires (in most cases) premiums to be paid every year into the policy. There are a number of different types of Whole Life Assurance, to simplify the discussion we confine it to two
-
Non- Participating
All values related to the policy (death benefits, cash surrender values, premiums) are usually determined at policy issue, for the life of the contract, and usually cannot be altered after issue.
This means that the insurance company assumes all risk of future performance versus the actuaries’ estimates. If future claims are underestimated, the insurance company makes up the difference. On the other hand, if the actuaries’ estimates on future death claims are high, the insurance company will retain the difference.
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Participating or With Profits
In a participating policy the insurance company shares the excess profits (variously called dividends or refunds in the USA, bonus in the Commonwealth) with the policyholder. Typically these refunds are not taxable because they are considered an overcharge of premium. The greater the overcharge by the company, the greater the refund or dividend. For a mutual life insurance company, participation also implies a degree of ownership of the mutuality.
4) Universal Life Insurance
Universal Life is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.
5) Variable Universal Life
Variable Universal Life Insurance (often shortened to VUL) is a type of life insurance that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The ‘variable’ component in the name refers to this ability to invest in separate accounts whose values vary–they vary because they are invested in stock and/or bond markets. The ‘universal’ component in the name refers to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the insurer. This flexibility is in contrast to whole life insurance that has fixed premium payments that typically cannot be missed without lapsing the policy.
Variable universal life is a type of permanent life insurance, because the death benefit will be paid if the insured dies any time as long as there is sufficient cash value to pay the costs of insurance in the policy. With a typical whole life policy, the death benefit is limited to the face amount specified in the policy, and at endowment age, the face amount is all that is paid out. Thus with either death or endowment, the insurance company keeps any cash value built up over the years. With a VUL policy, the death benefit is the face amount plus the buildup of any cash value that occurs (beyond any amount being used to fund the current cost of insurance.)
| Insurance Type | Premium | Death Benefit | Cash Accumulation | Investment Choice | |
|---|---|---|---|---|---|
| Term | Level Term Insurance | Relatively low, fixed | Fixed during the term, then zero | No | No |
| Renewable Term Insurance | Relatively low, increasing | Fixed | No | No | |
| Decreasing Term Insurance | Relatively low, decreasing | Decreasing during the term, then zero | No | No | |
| Permanent | Whole Life Insurance | Relatively high, fixed | Fixed minimum amount, some upside | Yes | No |
| Universal Life Insurance | Relatively high, flexible | Variable | Yes | No | |
| Variable Whole Life Insurance | Relatively high, fixed | Fluctuates with the performance of the investment | Yes | Yes | |
| Variable Universal Life Insurance | Relatively high, flexible | Fluctuates with the performance of the investment | Yes | Yes |
Diagram Source: inheritancenetwork.org
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Eight Things Consumers Should know about credit card debt
Having a credit card doesn’t automatically mean that the holder must get into debt which can later become unmanageable and overwhelming. Many people, in fact millions of people charge purchases to their credit cards, and never pay a single cent in interest. Here are 8 credit card tips.
1. Owing Money Is Not Inevitable
It is completely possible for an individual to use their credit card regularly yet avoid being in debt. The secret to being able to do this, is charging only what one can afford to pay when the bill finally arrives. Credit cards when used simply as a payment mechanism rather than a funding source ensures that the individual can manage to stay out of debt.
To be able to do this the consumer should be acutely aware of their cash flow situation, tracking whatever charges they do make and ticking it off against income, and they must maintain the monitoring of income and expenses on a continuous basis. People who do not maintain knowledge of their cash flow situation, and use credit cards will most likely end up in debt to the card issuer.
2. Know When Short Term Debt Makes Sense.
Financing a purchase through debt can sometimes make sense, and therefore the use of a credit card can be a wise and useful option. The key is the repayment period, which should be as short as possible. If the consumer can make the repayment as quickly as over a couple of months, then they may pay no interest whatsoever if they stay within the interest free period, sometimes as long as 60 days, or whatever interest they do pay, is numerically small, even if the APR is high.
3. Owing Is Easy, Repayment is hard.
Individuals who do not pay close attention to their spending habits on their credit cards can easily sink into overwhelming debt. Typically consumer start of spending small amounts or borrowing only a little from their credit cards because their credit limits are low. As time progresses the card issuer increases the limit and the amounts borrowed end up increasing as well. Paying down debt is difficult because as the balance climbs, the interest compounds, and payments increase. With funds promised to past spending, less money is available for current and future expenses.
4. Debt Affects Credit Scores.
Remaining free from debt is not only advisable from a financial perspective, but holding on to high balances on credit cards, negatively impacts the borrower’s credit score. In order to score well, consumers should endeavor to hold under 35 per cent of their available credit limit. For example if an individual has a $1000 credit limit, in order to maintain a high credit score, they should not carry more than $350 in debt at any point of time.
Making repayments on time is also critical, falling behind or skipping payments will mean creditors reporting the borrower to the credit bureaus, which will mean an extremely negative impact on the borrower’s credit score, which in turn negatively impacts their ability to borrow.
5. Develop A Repayment Plan.
For those consumers who find themselves mired in debt, there is hope for being able to climb out. Being committed to being debt free and having a plan is the best way to do so. Here are a few tips.
• Limit spending to basic needs to free up cash to pay down debt.
• Ask creditors if they will reduce your card’s interest rates.
• Prioritize payments by interest rates (pay the high-interest balances first).
• Suspend charging while in repayment mode.
6. Talk To Creditors.
Credit card issuers are not under obligation to accept less than the minimum monthly payment. However it is in their interest to help customers or borrowers who are having trouble making their payments, avoid a default. Often card issuers will help, and offer a solution such as forbearance where the monthly payment is frozen for a short period of time, or they may agree to a lower repayment
7. Settle Cautiously And Be Aware Of The Consequences.
It is possible for a borrower is having serious problems with their debt and feels they simply will not be able to meet their obligations, to settle the debt with the card issuer for less than the amount owed, so long as the amount agreed is paid as a lump sum.
Debt Settlement is a step short of declaring full bankruptcy, and has a dramatic negative effect on the borrower’s credit score and should only be used as final solution after everything else for asset sales to forbearance programs have been used.
In order to be able to settle with a creditor such as a credit card issuer, the borrower needs to be several months behind on payments and be able to offer a lump sum. It is better to negotiate a deal with the creditor directly, though there are debt settlement companies which will do this for you, but charge fees.
8. Borrowers Cannot Go To Jail For Non-Payment.
People who fail to honour their financial obligations will not be arrested or put in prison. There are however some legal implications which borrowers should be aware of. Most importantly creditors can sue defaulters in a court of law and should they win be able to collect the defaulters income at source, or take non exempt property and assets as repayment.
Living debt free is within every card holder’s capability. The key is to always be aware of charging and balances, and address credit problems immediately.
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Federal Government To Aid Auto Finance Companies
Federal Treasurer Wayne Swan on Tuesday announced the Federal Government of Australia’s intention of propping up the beleaguered auto loan industry and in particular Ford Credit through the activation of a special industry wide guarantee.
“The government has been advised that the possible departure of Ford Credit from Australia would seriously jeopardise thousands of jobs, most of which are in regional areas, not only across the Ford dealership network, but in the Australian car industry more broadly,” Mr. Swan said in a statement.
In December as the global banking crisis approached its apex in December, the Labour government in directed Australian banks to provide funds to the auto finance companies after GMAC and GE exited the Australian market.
Car dealerships across the country descended into a tizzy trying to arrange alternate sources of finance as the effects of the global crisis in banking meant that their original sources were no longer viable.
Federal Treasurer Wayne Swan said Ford Credit alone provided finance to 230 dealers throughout Australia. The original commitment was for up to A$2 billion ($1.53 billion) of funding, but Swan said the guarantee facility would now be no larger than A$850 million.
Mr. Swan said after the government negotiated a deal with Ford Credit through Credit Suisse that the enable the auto finance company to access up to A$550 million over the next year to support its dealerships.
Ford Motor Company, is the only US Automaker that has not asked for US Federal funding, though it has been hit just as hard as its rivals as the market for new vehicles has contracted substantially over the last twelve months.
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CBA Joins Rivals And Cuts Dividend By 25 %
Australian banking major Commonwealth Bank of Australia, has joined its rivals and become the last of the big four to cut its dividend joining NAB, ANZ and Westpac by cutting its dividend by 25 per cent in a bid to provide a cushion against rising bad debt in an economy which is softening.
CBA said its unaudited cash earnings for the quarter ending March 31st were $1.15 billion which included a $630 million impairment charge for the quarter. CBA failed to provide year on year data, but did report its first half profits back in February which fell 16 per cent compared with the same period a year earlier.
CBA said it intends to pay a final dividend of $1.15 a share.
“Operating conditions remain challenging, with a continuing slowdown in the domestic economy. Rising unemployment and slowing credit demand will have negative implications for the Australian banking sector, particularly for volume growth and loan impairment charges. Whilst credit quality trends remain within expectations at this stage, we are continuing to increase provisions given the likelihood of further deterioration.” CBA chief executive Ralph Norris said.
CBA went on to add that it was positioned well, through a large market share with margins improving despite being softer than they were prior to the banking crisis, and as a result group revenue growth would be maintained.
The lender said that consumer delinquencies in the last quarter had increased in line with a softening economy. CBA went on to add that its commercial credit portfolio “remains sound” though some sectors including SME, mining services and tourism had shown signs of weakness.
“Inevitably there will be bumps in the road, but we feel that global markets are no longer in free fall and that some of the measures taken internationally and domestically have been effective in mitigating an otherwise more ominous set of scenarios,” Mr. Norris said.
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Four Common Credit Card Mistakes And How To Avoid Making Them
Credit cards offer a great way to buy things you could not afford immediately and sometimes for people who don’t want to carry debt they offer a great mechanism. For whatever reason an individual uses credit cards, here are four commonly made mistakes and how to avoid them.
(1) Negative payment hierarchy
Negative payment hierarchy is a technique used by card issuers to ensure that the debt which carries the least interest on a credit card is paid off first rather than the debt that costs the moth.
For example a card holder who opts for a zero interest balance transfer card and transfers the balance of an existing card to their new card, will find that should they make a purchase on that card and then make a payment on it, the card issuer will use the payment to pay off the debt that carries no interest, whilst the purchase which is racking up the usual rate is left unpaid.
How To Avoid It
There are three ways of avoiding this trap. The first being using a different card to the balance transfer credit card for making new purchases and making sure that the purchase is paid off before the interest free period on the second card expires.
The second method is to choose a balance transfer deal which offers interest free periods on new purchases that last as long as the balance transfer offer period as well, which means there is no portion of debt which is accruing higher interest than any other on that particular card.
The final method is opting for a credit card which offers positive payment hierarchy, a card which lets the borrower pay off the most expensive debt first. (these are few and far between for now)
(2) Incurring Harsh Penalties For Minor Mistakes
Zero interest balance transfer deals are not hugely profitable deals for lenders, though the borrower is charged a percentage to transfer the debt to a zero interest card, lenders look for other ways to generate their profits, and imposing harsh penalties for minor mistakes.
Missing a payment, making late payment or exceeding the available credit limits all give the card issuer the ability to impose punitive costs on the borrower. Minor mistakes can sometimes have the effect of eliminating any benefit that the borrower receives from a zero per cent balance transfer and borrowers should be careful to avoid them.
How To Avoid It
The easiest way to avoid defaulting is by setting up a direct debit for the minimum monthly payment (obviously for borrowers who can afford it, perhaps more, so that less interest charges are paid over time should the debt be carried beyond the initial interest free period ).
(3) Not Keeping Track of APRs creeping up
Despite official interest rates all over the world falling to in some places, multi decade lows, many lenders have quietly been increasing the interest rates they charge to their credit card borrowers.
How to avoid it
Borrowers should be vigilant and should keep an eye on their statements, should they find that interest rates are edging up then they should switch cards.
One way to ensure that APR’s remain low is borrowers should consider taking out a lifetime balance transfer credit card. Essentially, these cards offer a low rate of interest for as long as it takes to clear the balance.
For total rate consistency and peace of mind, choose one that offers a fixed APR, rather than a variable one.
(4) The minimum payment trap
In recent months, several card providers have reduced their minimum monthly repayment levels without explaining to their customers what this means for their debt.
Lenders are not being altruistic when they lower the amount borrowers are required to pay, what they are doing is seeking to extend the term of the loan which results in a longer period the borrower is in debt for and ultimately increases the amount the borrower ends up having to pay as interest.
How to avoid it
If a card issuer or lender reduces the minimum monthly payment (or even if it doesn’t), borrowers should set up a standing order to ensure you’re paying as much as you can possibly afford every month.