Despite lower home loan interest rates, household budgets appear to be at breaking point, with a rise in the number of people defaulting on credit cards a key indicator.
A credit card default is defined as a balance of $100 not paid for two months, which may not seem like much, but it can be the start of a whole lot of financial trouble down the track. Credit reporting agency, Veda, which holds about 16 million credit files, noted that the number of defaults on credit card payments was rising steadily, with an increase of 15 per cent noted since August last year. This is at odds with the decrease in home loan repayment defaults.
Debt recovery agency Dunn & Bradstreet also noted an increase in consumer debt problems, with the company called in to recover more defaults on household and utility bills. Referrals of consumer debt rose five per cent in the June quarter, which was on top of a 15 per cent increase in the March quarter.
Being unable to pay credit card bills is the first sign of financial strain and could be seen as a result of the growing unemployment rate, which currently sits at 5.8 per cent. Katherine Lane, Principal solicitor at Consumer Credit Legal Centre, said there was an increase in people looking for financial counselling after losing their jobs, “It’s not as bad as pre-GFC, but you can tell that things are not going as well as they were.”
Read the full story at TheAge.com.au.
Most of us will have missed a credit card payment at some point, but at what stage should you start to worry if this is the first sign of financial stress?
Obtaining a credit card is often the easiest source of borrowing unsecured money – that is money for which you do not have to offer security, such as your home. This is because financial institutions are usually more than happy to take a calculated risk given the high return in interest earned.
The lure of an introductory low interest rate can be too much for some to resist, even those who are already experiencing the first signs of financial strain. I am appalled at the adverts on television which advocate using your credit card to rack up debt on luxury items, such as holidays, and then suggest that you transfer your balance to the advertised product to enjoy a lower interest rate. This is simply irresponsible. And I can’t believe the number of unsolicited credit card offers which I receive through the mail offering me rewards and low interest rates. If I think I can get a better deal on my credit card then I’ll look into it, I don’t need junk mail to tell me how to manage my finances.
Recent credit card reforms have made it illegal for your credit card company to offer you an increased credit limit unless you agree to receive such ‘invitations’. And your statements must now indicate how long it will take to clear your balance if you only pay the minimum due each month. But if you’re struggling to balance the money coming in with the money going out, then an increased limit is only a phone call away and you can worry about paying more off your balance when ‘things start to look up’.
If any of this sounds familiar then it’s time to seek assistance, not to take out another credit card, increase your balance or think it’s okay to miss a payment or two.
When struggling with your finances it is important to seek assistance as soon as possible. Read our article, Resolving financial difficulty, to find out where to get the advice you need.
Is debt seen as the easy option? Should credit card companies be more responsible about lending? Or is it up to individuals to manage their own money?