Bad Credit Loans, Bad Credit Home Loans – Bad Credit Finance Australia

Credit Card debt is one of the most frequent reasons why Australians get into Debt Problems. Very few people have the discipline that credit card use requires. If you do not possess the necessary Credit Card discipline – simply give them up and never use them again.

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.

Arrears on mortgages underlying Australian prime residential mortgage-backed securities dropped to their 1.35% in November 2001 – reaching their lowest level during that year.

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.

AUSTRALIANS are beginning to show some care with unnecessary debts with more Aussies opting to use debit cards instead of credit cards and personal loans.

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.

A recent study by Veda Advantage has identified that almost one in 10 consumers have misled lenders in order to obtain a loan, but in doing so may have become overcommitted with debt to a level they are not able to afford.

The Debt Study by Veda Advantage found about 1.6 million people had admitted to misleading a potential lender either about their total expenses, income, or the amount of money owed on credit cards.

These figures are a concern.

Credit providers are not allowed by law to offer loans that are not affordable to a borrower. Without positive reporting lenders face challenges in gaining an independent understanding of a person’s financial commitments,.

Australia’s current system of negative credit reporting meant banks did not have enough information to make a properly informed assessment on whether someone could repay their debts, he said.

“They cannot see whether a consumer is overcommitted, leaving many vulnerable to falling into a debt trap,” he said.

It is expected that positive credit reporting legislation will be passed by mid-2012.

Veda research has also identified that people currently overcommited with debt only take on another credit card rather than trying to reduce the debts they already have.

It also found that over the past three months, 12 per cent of all those surveyed had missed a minimum bill payment.

The study interviewed 1052 Australians aged 18 years and older last month.

According to trends identified by major debt collection players, Consumers are showing more interest than ever before to repay outstanding debts.

People are telling up they want to clear debts and start moving forward – said Matt Thomas, the chief executive of Collection House, one of the two dominant debt collection firms in Australia.

People are more diligent in servicing existing debts are looking to pay out whatever debts they can.

Collection House is offering all debtors with unpaid debts, however old, a discount to clear their old debts before the end of this year.

MasterCard have identified a drop in outstanding credit balances, and they are not alone in spotting this trend.

RBA data also showed a 10 per cent rise in the number of new debit card accounts, compared with a two per cent rise in new credit cards, down from growth of six per cent in recent years.

Both MasterCard and Collection House say early December is traditionally a time when people decide to settle some old debts before taking on new ones. This year the pattern is different, with households repaying one billion dollars more than usual on their outstanding credit card debt, and setting a new record.

As more people fall into arrears on their loans, banks have increased their penalty fees.

According to the RBA the banks have had a 9 per cent increase in penalty fees on loans to $536 million as borrowers struggle with their loan repayments.

And the banks are also under pressure to recoup more than $1 billion per year from other areas.

ANZ is the first of the major banks to be hit with legal action on fees. Customers lodged a $50 million class action in the Federal Court yesterday alleging it wrongfully charged hundreds of millions of dollars in penalty fees in the past six years.

While this legal action is more of a test case for the banking industry, it may be the first of many to follow.

ANZ acknowledged exception fees were unpopular, but said it would defend the legal action. “It’s a big leap, however, for a fee to go from being unpopular to being unlawful. ANZ will be defending this claim vigorously,” said ANZ’s Australian operations chief executive, Philip Chronican.

ANZ had reworked its fees and charges in December.

Banking analysts said the loss of fee income was a blow for the sector already feeling the squeeze from a sharp rise in wholesale funding costs.

Exception fees on credit cards make up the largest share of penalty fees paid by households.

For ANZ, a potential $50 million payout represents little more than 1 per cent of this year’s expected profit. But analysts said the impact on its bigger rivals could be larger.

To avoid penalties from the regulators, banks have in the past removed various penalty fees to appease customers.

Westpac will be the biggest hit, losing $300 million in annual exception fee revenue, translating to $210 million in lost earnings. Commonwealth stands to lose $200 million in revenue, translating to a $135 million hit to earnings. The annual revenue impact for ANZ and NAB is also about $200 million.

The main point of contention in the legal action against ANZ is that the bank had been ”unjustly enriched” by the penalty fees at the expense of those customers paying the fees.

Two years ago, the Office of Fair Trading in Britain had initiated legal action against the NAB over bank charges.

NAB’s Clydesdale Bank was one of seven British lenders that had challenged the ability of the OFT to investigate whether overdraft fees were fair under laws governing the terms of consumer contracts.

While the consumer watchdog won its initial legal bid to investigate the fairness of charges, this was later overruled by a higher court. The equivalent of $4.6 billion in annual revenue was at stake had the Office of Fair Trading won.

Recently, Australian banks argued against the introduction of rules banning ”unfair terms” in contracts, a measure that would reduce their ability to enforce fees

Aussie borrowers have taken on $86.3 billion more debt in the past year, but current research reveals Australians are attempting to gain some control of their debts by using savings to pay down credit cards and personal loans as well as mortgages.

People would rather pay out current debts before putting any savings together. This certainly makes sense.

According to data provided by the RBA, Australian consumers have paid out $20.5 billion off their credit card balances in June 2010.

The ING Direct index found 48 per cent of homeowners making extra repayments on their mortgage, and 3 per cent struggling to meet repayments.

Currently Australia’s median mortgage balance is $175,509, down from $177,259 in the first three months of 2010. The median card debt per Australian household has gone down from $1802 to $1673.

Half (53 per cent) of households have less than $17,000 in savings and 17 per cent have no savings at all. The cash squeeze isn’t limited to low-income households, with 11 per cent of households earning $100,000 or more annually having no personal savings.

Clearly people have realized that they need to be careful with taking on debt which they are not able to service and have commenced to slowly pay out existing debts from savings.

Borrowers who have excessive non tax-deductible debts, such as credit cards or a home mortgage, should pay them off as soon as possible.

Borrowers with a large amount of debt should review available methods of debt reduction including consolidating various unsecured debts with a higher rate of interest into their mortgage.

According to the latest research by Ratecity, Aussie household are holding $86.3 billion more debt this year than in 2009. While much of this debt is unsecured and therefore is not reflected in home loan commitment figures recently reported, credit cards and personal loan debt is higher than ever.

In an analysis of data from the Australian Prudential Regulatory Authority (APRA), RateCity found that households borrowed $771.3 billion in June – 12.6 per cent more than in the previous year $685 billion. This includes personal loans, credit cards, and owner occupied home loans.

The risk of over-borrowing is something that is greater today than this time last year. This is despite the interest rates being put up a number of times by the RBA over the past 12 months.