4th Jul 2018
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One in six credit card-holders drowning in debt: ASIC
Author: Janelle Ward
One in six credit card-holders drowning in debt: ASIC

Australia’s credit card balance is about $45 billion and one in six people are struggling with their debt, according to a report by the Australian Securities and Investments Commission (ASIC).

The corporate regulator says 18.5 per cent of credit card-holders reported being overwhelmed by their level of debt, with 550,000 people in arrears and 930,000 with persistent debt at the end of June 2017. At the same time, banks and credit card companies are reaping record levels of interest – $31.7 billion from the $45 billion debt, says ASIC.

Many credit card offers are a “debt trap”, warns ASIC, with balance transfers from one card to another a key concern.

As the banking inquiry continues to reveal the unethical and sometimes unlawful behaviour of banks and financial institutions, ASIC says tighter rules are needed around who can get a credit card and what type of card they should be offered. It proposes “responsible lending assessments” be based on whether consumers can repay the credit limit within three years.

ASIC deputy chairman Peter Kell said that few credit providers addressed consumers’ persistent levels of debt and singled out four lenders – Citi, Latitude, American Express and Macquarie – for retaining old rules for credit cards opened before June 2012. They were not breaking the law, he said, but were over-charging long-standing customers.

“There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings,” Mr Kell said. “We will be following up to ensure the problems we have identified are addressed.”

Citi, Macquarie and American Express intend to ditch the old repayment system, according to reports, while Latitude has told the regulator it is considering its position.

ASIC’s proposed reforms would apply to new and existing credit card contracts from 1 January 2019.

Meanwhile, The Age reports that law firm Slater and Gordon is investigating the potential for a class action with more than 100,000 customers duped into paying more than $40 million for “worthless” credit card insurance.

Have you fallen foul of credit card debt? Are you diligent about paying off the balance every month? And ensuring you have the best card for your circumstances?

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    COMMENTS

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    Old Geezer
    4th Jul 2018
    11:30am
    I just don't get it with all this credit card debt. How can anyone spend money they don't have? I love my credit cards as they are a great slave to me and I get all the benefits without paying for them.
    Rae
    4th Jul 2018
    11:39am
    Yes indeed OG me too.

    However not everyone is as disciplined or as intelligent.

    Spending today to live beyond your means without considering how to pay back is a real problem in Australia. We, the private borrowers, owe something close to 4 trillion dollars and how it will be repaid is beginning to concern a lot of us.
    Noodles
    4th Jul 2018
    1:25pm
    Yes, the banks hate people who pay their monthly bill on time..in fact they have a term for us but I cannot remember what it is.

    The whole problem lies in educating children in their formative years and unfortunately we have children rearing children in many cases now and they have not a clue themselves re finance.

    I see where the Barefooot Investor, Scott Pape, is trying to having this taught in schools before kids even enter the workforce. I am all for teaching kids all the "life skills" they will need as they are obviously not being taught at home.
    Hasbeen
    4th Jul 2018
    1:46pm
    Who would they get to teach it Noodles? The silly little girls, who make up the majority of school teachers today, are the very type who run up credit card debt on clothes, cosmetics, holidays & entertainment.

    Come to think of it, perhaps they could learn something themselves by teaching it.
    Cowboy Jim
    4th Jul 2018
    3:19pm
    Noodles - the term is Transactor, and the one they like is the Revolver. This latter one is the person who pays them the 21% or so interest.
    Radish
    5th Jul 2018
    7:46am
    Yes, those are the terms. I would hate to pay 21% interest and was quite amazed when I asked a family member how much interest she was paying on her credit card and she had not a clue.

    Scott Pape wants the goverment to fund financial lessons and I would assume this would be done by qualified people and not teachers. I certainly hope so anyway.

    I believe financial literacy is just as important as any other classes given to children.
    johninmelb
    4th Jul 2018
    11:38am
    Really don't understand this. It is just basic self-control. If you ain't got it, don't spend it. Simple.

    I have had a credit card since the very first Bankcard was issued way back when. I have never, ever, ever let it get out of control. But I guess coming from a family who did not have a lot of money when I was growing up, I learnt to live within my means.

    I haven't gone without, but I haven't had everything I might have liked in life either. Enjoyed my life by using my resources wisely, essentials first, luxuries later when they could be afforded. I paid off my house, I've had cars, I have travelled extensively.

    I despair of people who just waste money without thinking. But that's the world today. What does pxxs me off big time is people criticising me for travelling etc, because they can't. Lost count of the times I told work colleagues that if they saved the money they spent on coffee and buying lunch every day, they would easily save the money for an airfare to the UK every year. They couldn't comprehend that simple fact.

    And of course, just how many pairs of shoes, dresses, shirts, suits etc can you actually wear ? Even frugal me has more clothes in his wardrobe than he can wear! But then I buy at BigW, not David Jones.

    People say they have "emergencies". We all have emergencies, plumbing, electrical, car problems, health issues. What happened to keeping an emergency fund in a separate bank account and building it up bit by bit. When I was working, I always had 6 months living expenses banked in case of unemployment. Even now on the pension, I still have an emergency fund.
    Rae
    4th Jul 2018
    11:45am
    I fully agree with all you have said john.

    Friends also envy my travels but they are paid for by forgoing those regular spends that whittle the ability to save away.

    People underestimate how much the constant weekly spends on little treats and regular activities that cost $$$ actually cost them in the long term.
    Noodles
    4th Jul 2018
    1:31pm
    Yes, it annoys the hell out of me when people say "you are lucky" you can afford this and that. Luck had nothing to do with it at all.

    Good budgetting and financial planning is what it took and not being wasteful. We were on fixed incomes and not in business so no shonkiness went on either.

    We all chose our own paths in life...some spend, spend, spend, others take a different view on how to live and keeping up with the Jones's is not something we bothered with at all.

    4th Jul 2018
    11:50am
    These are the same people who can’t live on welfare because they can’t budget and keep asking for more handouts
    Rae
    4th Jul 2018
    5:26pm
    It wouldn't hurt the Government to run a few financial courses for those on welfare. Just basics like budgets, saving hints and how to find and negotiate better deals with service providers.

    I think we forget sometimes those less able Raphael. You get streamed in High School and don't realise the struggle those less capable by birth and circumstance go through.

    I taught as a relief casual for 15 years at the tail end of my life in a huge high school of 1400 students, mostly the bottom classes.

    Just ignoring the plight of these people as we move into a high skilled and technological future won't wash.

    Getting rid of the valuable jobs they provided was pretty greedy and stupid. I missed the tea lady, the train station attendant, the conductor on the busses and all those jobs that were unskilled but just added joy, meaning and help into our days.

    We can afford those jobs if we insist the waste at the top scales back a bit.

    How many trillions do we really need the top .01% to salt away in tax havens?
    Noodles
    9th Jul 2018
    3:20pm
    For those who choose to drink, smoke, gamble, the pension will never be enough and as I have said before on this site, life skills should be taught to set people up for when and if they ever get into the workforce/or spend their life on welfare.

    Everyone needs to know how to handle their money no matter how they acquire it.
    Old Man
    4th Jul 2018
    12:05pm
    There are, and always will be, people who are unable to handle credit and they are quite easy to identify. If debt is excessive when compared with income, the signs are right there in front of the people who make a decision to either issue or extend the limit on a credit card. A lot of the blame should lie with those who issue credit cards, not those who are unable to budget. Credit in Australia is far too easy to obtain and some providers of credit are preying on the most vulnerable in our community.
    Old Geezer
    4th Jul 2018
    12:12pm
    That's like taking away sharp knives from people because they might cut themselves. We are already too much a nanny state where were are not allowed to do things simply because someone might get hurt. People need to learn to control their own lives not allow others to control them instead.
    TREBOR
    4th Jul 2018
    12:25pm
    Yeah.. but what would users use to cut a line of coke, man? Gotta have a credit card....
    Old Man
    4th Jul 2018
    12:25pm
    What a dreadfully pious statement OG, your lack of compassion for your fellow man is breathtaking. You have overlooked the fact that some people have faults, some drink to excess, some gamble too much and some cannot handle their own finances. These people need our help, not your scorn.
    Old Geezer
    4th Jul 2018
    12:31pm
    So I am to blame because people are all so fat in Australia today because I wont allow the authorities to take away their knives and forks because they need them due to their rotten teeth.

    No one can stop people drinking or gambling and even though that welfare card might help it wont stop them. It is up to the individual to control their own life which cannot be done by taking things away from them.
    KSS
    4th Jul 2018
    12:35pm
    Old Man the numbers of people who "are unable to handle credit" would be very small and certainly nothing like 1 in 6. Unless of course you would agree that anyone who runs up a credit card debt are "unable to handle credit".

    I can hear the outcry now if the credit card providers started telling people they can't have a credit card or that they can no longer use the card they already have, or the credit limit will be reduced. Yells of discrimination would abound. I suspect that the majority of those who default on their credit card are not those on minimum wage, welfare or fixed incomes. I suspect most would be in relatively well paid employment who simply spend too much. This is not the fault of the provider. It is the sole responsibility of the card holder.

    And if you earn say $200,000 a year and cannot budget the effect is exactly the same as someone on $40,000 a year who can't budget. It's only the dollar value that differs.
    Old Man
    4th Jul 2018
    12:46pm
    KSS, I don't know what the percentage of those who cannot handle debt is and, I suspect, neither do you. My point was that there are people in our midst who cannot handle debt. Of course I don't agree with your statement that anyone who runs up a credit card debt is "unable to handle credit".

    I can't see how anyone can claim discrimination if a credit card provider can prove that an applicant is unable to repay the debt. If we take your statement to its extreme, can you walk up to a checkout with a trolley full of groceries and no money and claim discrimination should the supermarket not allow you to keep your groceries? Denying someone something to which they are not entitled is not discrimination KSS.
    Rae
    4th Jul 2018
    1:06pm
    I suggest the numbers of those struggling will be quite large now. 24 million of us wouldn't have $4 trillion of debt if we were borrowing wisely and paying back efficiently. It's a massive amount of debt for such a small number of people to owe.
    Theo1943
    4th Jul 2018
    2:05pm
    Rae, the Credit card debt is $45 Billion, about $2000 per head of population.
    Total debt includes mortgages and personal loans, car loans, etc. $4 Trillion is around $160,000 per head.
    Cowboy Jim
    4th Jul 2018
    3:23pm
    Trebor - in the movies they use a $US100 bill to cut the coke - no need for a credit card, is there?
    Rae
    4th Jul 2018
    5:31pm
    Yes Theo I meant total debt. It's a lot of money for 12 million workers to pay back. Especially as wages and salaries stagnate and in some cases are being cut.

    We had the advantage of inflation whittling the debt away but even that isn't happening now.
    Noodles
    7th Jul 2018
    4:20pm
    Friend owns a newsagency...guess who are her biggest gamblers, lotto, scratchies...seniors!
    TREBOR
    4th Jul 2018
    12:26pm
    Caveat emptor - and don't cave in at the emporium to want to buy something, either.
    TREBOR
    4th Jul 2018
    12:28pm
    Trebor Wise saying for the Day:- A twist on words is often better than a twist of fate.
    Cowboy Jim
    4th Jul 2018
    3:32pm
    Not worrying about tomorrow also helps - a mate told me that when he dies the credit card bill will go to his son and all the others will go to his daughter. A bit like our Govt today: all the debts will come to your children to make good. By the time the chickens are coming in to roost the perpetrators are long in the ground and beyond care. Might be different if the offspring of politicians had to make good!!
    Old Geezer
    4th Jul 2018
    4:59pm
    Cowboy your debts die with you if you don't have enough assets to cover them. His kids will be laughing.
    Charlie
    4th Jul 2018
    12:57pm
    Its the plastic that does it.?
    Rae
    4th Jul 2018
    1:08pm
    I wonder how after pay is going? It's like lay-by but take the goods now.
    Noodles
    4th Jul 2018
    2:56pm
    When I saw that sign in a shop window "buy now take now" or whatever it said I just shook my head.
    johninmelb
    4th Jul 2018
    3:27pm
    Afterpay might be a bit more manageable for some people, since it restricts you to 4 fortnightly payments only - as far as I understand it.

    Used correctly, it could help in that if you want to make a slightly larger purchase than is manageable in one hit, you can break it down to 4 chunks, and not have to find the full amount. Those paid fortnightly, can spread the payments over 4 pays.

    But, of course, used incorrectly, it just turns into a nightmare like credit cards.

    I'm in two minds about it. Could be good, could be evil. Doesn't bother me anyway as I don't/won't use it. But golden rule still applies, if you can't afford it, don't buy it.
    Cowboy Jim
    4th Jul 2018
    3:37pm
    Coming across a green note ($100) is rare these days, so keep it somewhere for that purchase you will have to make down the track. Once you break it for some reason it just disappears and I cannot remember where it went - maybe down the bottle-O.
    Old Geezer
    4th Jul 2018
    5:04pm
    Strange as it may seem I have used Afterpay only because the goods were half price if I did.

    Those green notes have far more minted than any other note but you hardly ever see them as they are being horded. Called into a Travel Agent a couple of days ago and an old lady had a bag full of them to pay for her trip. Took ages for them to count them. Well over 10 grand so wonder if the travel agent had to notify the powers that be like the banks do? I guess not.
    Cowboy Jim
    4th Jul 2018
    6:51pm
    OG - I think they would have to report the cash. We bought a car last year and a bloke was in there wanting to buy a new one with $20'000+ in cash. Salesman said it was possible with a stack of form to fill in and the bloke left again. So I think reporting is on - maybe for something second hand, eh?
    Noodles
    5th Jul 2018
    3:00pm
    I wonder how many on this site who carry on about people minimising tax (which is legal) are guilty of hoarding $100 notes under their mattress to enable them access to a pension.??
    Old Geezer
    5th Jul 2018
    5:03pm
    Noodles that would not surprise me at all. There is a good chance that was what they lady in the travel agency was doing.
    Culgoa
    4th Jul 2018
    4:56pm
    Get debit card for convenience then you won't be able to spend if you don't have the money.
    Old Geezer
    4th Jul 2018
    5:36pm
    Unfortunately that is not true. Unless you tell the bank that you don't want to be overdrawn you can be overdrawn.
    MD
    4th Jul 2018
    8:17pm
    Yep, spot on the money there Culgoa. I cut our CC up when the (Citi) bank refused to stop a periodical payment. I had cancelled a subscription but the provider claimed a minimum period was owed. The bank wouldn't stop payment because direction was required from provider. I shut the account immediately and although any outstanding amounts due are still the cardholders responsibility I reached agreement with provider. Bank came back shortly thereafter with an offer of an extra $10K - on top of the former amount. Thanks but no thanks. We were only worth the annual fee.

    We had formerly used the CC for most purchases, principally to accrue Frequent Flyer points. The amount due was paid promptly each month so never became a burden. I just resented banks and/or businesses attempting to brow-beat me into submission.

    Far to many people accessing credit simply can't help themselves. Bank largesse/stupidity is but a part of the problem: unfunded consumer stupidity represents the bulk of this problem. It's a little like drivers that have lost their licence - most still drive their car, bugger the consequences. Just ask them, they'll tell you "but I need my car" and a CC junkie has as much right to credit as a hole in the head. Mmm... maybe it's the bankers need the hole in the head. Nah, both parties do.
    Anonymous
    4th Jul 2018
    8:33pm
    came in the world with nothing, depart the world with nothing and if the banks are willing enough to supply me with all the comforts this world offers for no cost during my stay here I say bring it on, o.g, as usual a great assessment with your post "your debts die with you, etc", comparing that with the usual want to say something just to be noticed and not known for intelligent comments using sentences in this column such as " use a credit card to cut a line of coke or having wise???? words of the day shows this person wants attention for the sake of attention, must be a very lonely person to sit on his computer at 2.30am in the morning
    Old Geezer
    6th Jul 2018
    4:50pm
    MD unless you tell the bank you don't want your account overdrawn under any circumstances they will allow it to be overdrawn. This came about after people complained about direct debits being dishonoured and fees being charged. So banks now allow bank to stop people complaining about being charged fees for dishonoured direct debits etc.
    musicveg
    4th Jul 2018
    8:25pm
    I have a credit card I never use and it is costing me an annual fee, but I cannot get another one due to low income, so what do I do, I keep it for emergency which I last used 7 years ago. Any suggestions of a low fee card for a low income person anyone?
    Anonymous
    4th Jul 2018
    8:36pm
    see centrelink when you need money for emergencies.
    Cowboy Jim
    4th Jul 2018
    9:43pm
    Might look at the Coles Credit Card (no yearly fee) option. As long as you use that as a cash card (always pay it off) it might be the answer. I use my card for the same reason, could not get another one if I let the current one go.
    MD
    5th Jul 2018
    9:29am
    Now apply reason heemskerk99, the probability - although remote - of "emergencies" which require instant access to funds can and do occur.
    I've a distinct feeling it is this which musicveg alludes to. In the event of a foreseen "emergency" where financial hardship may result then your suggestion may help.
    Many shades of grey exist between the extreme black and extreme white spectrum.
    musicveg
    5th Jul 2018
    2:10pm
    Yes MD I do refer emergency as in instant paying of something. ie: I was once too sick(just spent 24 hours in hospital) to get public transport back from the city and had to pay a taxi for the 1 and a half hour journey home, the credit card was the only thing I could use at the time. I was able to lie in the back of the taxi and brought straight to my door without trying to catch two buses, waiting time, sitting up, and walking back to my house from bus stop. The extra interest paid was worth it. And no at the time I could not use my debit card.
    Old Geezer
    5th Jul 2018
    4:55pm
    Some of the banks give you fee free credit cards if you own some of their shares. One gives you a free credit card that normally has a $250 fee.
    OnlyGenuineRainey
    6th Jul 2018
    5:54pm
    NAB offers a free credit card if you hold a certain number of shares, and it's a reward card that can clock up some huge benefits. My credit card rewards + Flybuys reward generally covers our Christmas gifts and dinner.
    Old Geezer
    6th Jul 2018
    6:31pm
    Unfortunately NAB has a limit of how many points you can get on each card per month so you need 4 or 5 cards to make it work well.
    OnlyGenuineRainey
    4th Jul 2018
    11:02pm
    I've always been perplexed by people who say they can't afford an annual bill and need to be billed monthly or quarterly. I love annual bills. In fact, I recently opted for a car insurance policy that allowed me to pay 5 years in advance!
    I learned very early in life that you work out your total annual costs for each necessity, divide that by 52 (or 26 if you are paid fortnightly or 12 if paid monthly) and put that much aside every pay day. It's there when the bill comes, and with luck it will earn a little interest in the interim. My rule is to add at least 5% to each expense to allow for fluctuations and price increases, so it last year's rates came to $3000, I'll put aside at least $60.60 every week to pay the next rates bill. It's amazing how quickly you build a nice surplus in the account!
    Credit cards are a great convenience. They give me a reliable history of purchases and save me carrying cash, but I pay the total balance before the due date every month. I use reward cards, and the rewards cover any annual fee plus give me a nice bonus to spend on Christmas gifts. If I ever found myself at the due date for payment with not enough cash to cover the total balance, I'd cut the card up immediately.

    I guess over-spending is an addiction for some, just like gambling and alcohol. And I suppose some folk just don't have sufficient intelligence or self-discipline to make and adhere to a budget. We should have some sympathy for them. The banks should carefully assess capacity to pay before setting limits on cards, and should suspend cards immediately if people fall into arrears, but we really need to find ways to educate people to live within their means. Life skills should be a compulsory subject in all schools and should cover everything from budgeting to cooking simple economical meals, mending clothing, basic car and household maintenance, etc.
    Cowboy Jim
    5th Jul 2018
    9:09am
    OGR - paying bills in advance also sometimes helps getting a higher pension payment unless of course you are on the full pension and then you cannot afford that anyway.
    The banks do not give interest and C/Link takes off $3 for every $1000 you have in the bank above a certain amount. And at times you might get a discount by paying in advance.
    Old Geezer
    5th Jul 2018
    1:24pm
    OGR I hope you got a good discount paying 5 years in advance as a lot of my bills especially insurance are quite a bit less than they were last year.
    OnlyGenuineRainey
    6th Jul 2018
    5:50pm
    Whopping discount, OG, The total for 5 years was equal to a usual 1 year premium!
    Old Geezer
    6th Jul 2018
    6:29pm
    That's good as the rate premiums are falling you may just be in front in 5 years.
    Suze
    5th Jul 2018
    8:54am
    Rae
    If private borrowers in Australia have a debt of 4 trillion dollars and the debt were to be divided evenly between each man,woman and child, all 24.8 million people living in the country then each individual would have to fork over $161,290.323 .... Ouch !!!

    Australia holds 3rd place in the World for household debt ... so much for the sense of entitlement and 'gimmy gimmy' attitude.
    MD
    5th Jul 2018
    9:36am
    Frightening isn't it Suze, maybe that's the reason why so many people nowadays, whether on foot, in shops or their (encumbered) cars are so pushy (get outa my way) - because they're keen settle their debts - so lookout anybody that gets in their way.
    Rae
    5th Jul 2018
    3:49pm
    It's the stuff of nightmares alright. The Government think they'll be able to keep paying the loans back at least until August/Sept next year when the tax cuts start rolling. I hope their timing is right for all our sakes.

    Let's also hope those wage cuts don't rebound in the shops and entertainment venues. The businesses save but if the cashflow falls off too much they may just be in trouble depending on debt levels held.

    It's an insane amount of debt. Work it out on the 12 million working and it looks even more daunting.
    Old Geezer
    5th Jul 2018
    4:56pm
    For some reason I thought the tax cuts were already in from the July 1.
    KSS
    6th Jul 2018
    10:15am
    Yes Old Geezer but you only get it as a discount of next year's tax return, not a reduction in the weekly, fortnightly or monthly tax bill.
    Old Geezer
    6th Jul 2018
    4:47pm
    I thought they would adjust the tax tables from July 1. I'll have to have a look and see.

    I only pay tax once a year so I'll just pay less tax come year end.
    Noodles
    7th Jul 2018
    4:21pm
    well someone is carrying my share of the debt!


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