As home loan rates begin to ease, overextended borrowers will be able to breathe a sigh of relief. Rates will be reduced not only on home loans but also car loans, personal loans and credit cards…making it easier for families to stay afloat.

While 2011 had brought 2 interest rate reductions only towards the end of the year – it was enough to make a difference to many families carrying significant levels of debts. Borrowers have been on a look out for debt consolidation opportunities with many looking for a well priced fixed rate mortgage which allows them to consolidate unsecured debts in to the loan.

Further reductions to interest rates should bring further mortgage stress relief which is very much in demand.

According to a survey by Loan Market Group, 69 per cent of respondents had become determined savers and more concerned about taking on further debt since the GFC. Many have looked at debt consolidation options and paying down their home loans, car loans etc.

The Loan Market poll which asked “Did the GFC fundamentally change your approach to finances?” found Gen Y respondents were the most savings conscious, with 44 per cent saying they were now focused on creating a savings buffer.

The online survey found 42 per cent of the 498 respondents said they had been creating a savings buffer since the GFC, while 27 per cent said they had been conscious about taking on more debt.

Ten per cent said they were now more risk averse as a consequence of the GFC.

These results are not really surprising given that many Generation Ys are only starting out to live on their own and are learning to cope with managing family finances such as home loans or rental payments.  Many are having issues with credit card balances and are looking to consolidate these and pay them down as soon as possible. Overall the Gen Ys have really understood the need to save in these uncertain economic times.

The Dun & Bradstreet Consumer Credit Expectations survey shows fewer Australians intend to apply for credit in the September quarter than expected to in the June quarter. Nineteen per cent of respondents said they would apply for credit in the September quarter, down from the 27% who indicated they would do so in the June quarter.

While the number of survey respondents who believe that they will struggle to meet their repayments has declined slightly, 30% still indicate they will face difficulty fulfulling their credit obligations. Nearly half the survey’s respondents said any RBA interest rate rise would have a serious impact on their family budgets.

Unfortunately many people are struggling and can not stay up to date with their credit card obligations.

Mr Smith’s comments on ABC television follow Westpac chief Gail Kelly who, earlier last week, acknowledged a rise in consumer arrears, but said it was not at a level to cause the bank a loss.

Generally poor credit quality is a feature of high unemployment times in Australia. Whereas today unemployment levels are quite low.

He said it now appeared to be seasonally related, noting “a little bit” of a situation where people were going on holidays and not repaying the monthly debt on their credit cards.

“But I think that interest rates are beginning to hurt a little bit now, so the recent rises are beginning to bite,” he said, adding that the Queensland floods had contributed to the issue.

He also made clear his view that credit growth going forward is unlikely to reach the levels seen before the Global Financial Crisis.

He said both corporate and consumer credit growth had slowed because people were more cautious while others were trying to boost savings.

Mr Smith expects that the Aussie dollar will continue to rise.

One of the main reasons for this was an expectation of  steady economic growth and inflation, not withstanding the weather kaos likely to contribute to inflationary pressures.

According to the minutes the Australian economy is growing at a good pace and does not require any tightening. Inflation is currently within the RBA target range.

While we are expecting to see some fallout from the local floods and hurricanes as well as the Japanese earthquake and tsunami – no rate adjustment is expected in the medium term.

The RBA approach is to ignore temporary effects caused by extreme weather events and to continue to set monetary policy based on the medium term outlook for growth and inflation.’’

The minutes noted ongoing upward pressure on commodity prices and the looming resources investment boom which would ‘‘take investment in that sector to a level that was unprecedented as a share of GDP’’.

In fact mortgage arrears rose to 1.38 per cent from 1.35 per cent in November 2010.

As financial stress remains an important issue for many borrowers, and the threat of future interest rate increases is still very much an issue for home owners, this figure is expected to increase over the coming months.

There is an expectation that mortgage delinquencies will increase in the first quarter of 2011, as the impact of natural disasters in Australia may have temporarily disrupted some borrowers’ ability to meet payments, particularly self-employed borrowers who are more sensitive to changes in business conditions,” Standard & Poor’s credit analyst Vera Chaplin said.

However despite the natural disasters and the financial disasters affecting many home borrowers, majority have weather the financial pressures quite well.

As of December 2010,  Aussies have racked up almost $50 billion in credit card debt. Many families are now experiencing the Christmas spending hangover….and it can be quite unpleasant.

Out of control credit cards often lead to defaults and bad credit. If all you repay is the minimum set amount, before you know it your debts will spiral to balances you will not be able to pay out. Next comes the payment of interest on interest and so on.

New research from Citibank Australia shows as a nation we are getting better at repaying our credit cards in full. Many Australian understand that one should not put any purchase on a credit card which one can not afford to fully repay by the end of the month. Credit Cards should be used in such a way that they offer the convenience of paying when you do not have cash handy, but they should not incur any interest. Ideally credit card balances should be repaid during the interest free period.

Statistics suggest that 59 per cent of people said they paid off their credit card in full each month, whereas three years ago it was only 40 per cent.

Last year 9 per cent of people said they paid the bare minimum each month, whereas three years ago 17 per cent of card users paid the minimum.

Citibank research also confirmed that women have more problems with managing credit card debt than men.

Whereas only 4 per cent of high-income households pay the minimum each month, 16 per cent of low-income households those earning less than a combined $50,000 a year do likewise.

If you can qualify for a low rate personal loan then it may make sense to consolidate credit cards and store cards into a personal loan. However the best and cheapest form of debt consolidation is into your mortgage. Adding unsecured debt to your mortgage allows you to significantly reduce your monthly repayments by having your unsecured debts incur secured level of interest – which is significantly cheaper than the rate on your credit cards.

Adding a credit card balance of $10,000 to your mortgage can make it cost you $20,000 plus in the long run, however by keeping the credit card where it is you can potentially pay a lot more than that to your credit card company.

A growing number of people, however, are switching to cards that offer interest-free honeymoon periods for debts transferred over from rival credit cards. These cards also offer a good debt consolidation alternative if used correctly.

It is important that you make every effort to:

- Payout the full balance transfer amount before the end of the transfer period.

- Don’t make extra purchases on the card thinking you will only pay the balance transfer interest rate, as this is not the case.

- Remember, in most cases repayments go towards the balance transfer first before being applied to any additional purchases.

- At the end of the balance transfer period, consider closing the card and moving your other debt to a low interest card.

- Do not hold too many cards if you can help it as many credit cards incur an annual fee. The more cards you have, the more you pay.

- You don’t have to have your credit card with the same provider you have your everyday account with. Shop around.

Even arrears on low doc mortgages, loans which are normally perceived to be very risky, also came in lower than in past months.

Subprime arrears fell by 72 basis points to 11.93 per cent in November 2010, compared with the level in October – taking the total subprime outstanding balances in November to below $2.2 billion.

But while arrears reached a new low in 2010, Standard & poor’s credit analyst Vera Chaplin said she expects to see home loan defaults increase during 2011 due to higher interest rates and the impact from Christmas spending.

Fresh data compiled by the RBA reveals a decrease of 2.9 per cent in the number of credit and charge card purchased during the month of October.

Careful shoppers prefer to spend their own cash increased debit card purchases 2.7 per cent.

More people are realising that the best way to control their debts is to limit the use of credit and try to spend their own money.

As a consequence of recent interest rate increases more people are making a real effort to minimize the use of credit and take control of their spending overall.

For as long as this new era of conservatism continues, the Reserve Bank does not need to make any changes to the cash rates.

The average outstanding credit card balance has dropped by $17.10 in October to $3244.80.

Concern over credit is more bad news for the nation’s struggling retailers who are fighting hard for shoppers’ dollars in the lead-up to Christmas.

The sector was rocked by woeful sales figures earlier this month that showed the big spending slowdown had begun even before interest rates rose in November.

The RBA’s chief economic adviser Philip Lowe last week said the marked increase in household saving, as revealed in the latest national accounts, could help keep a lid on inflation.