Monday 7th January 2019

Credit Card Debt – Consolidate or Close now.

Credit Card Debt – Consolidate or Close now.

It has been widely reported, the changes in bank verification as a result of a bout of bad publicity and changes to responsible lending practices.

On the 28th of December we received this communication from one of our lending partners.

As of January 1st 2019, all regulated lenders including the “ABC”, will need to adopt a common approach to the method of assessing credit card commitments for loan servicing calculations.

The approach historically used by most lenders of calculating a monthly commitment based on a set percentage of the borrower’s credit limit e.g. limit of $10,000 x 3% = $300 per month, will no longer be permitted by ASIC.

We have previously advised one lenders change to the calculation of 3.8% of the limit, but the communication continued to include:

Commitments must now be calculated as the amount required to fully repay the limit amount over a three year principal and interest term. The interest rate for this calculation will be the lower of a default rate of 22.00% p.a. or the actual highest rate that will apply to the facility as evidenced by documentation from the borrower e.g. via a current statement.

Using this example a $10,000 credit card will now be expended in a new loan at a minimum of $4583 per year (this is similar to the 3.8% per month previously advised)

In 2018 we proposed our own ban on plastic and the new rules that will now be imposed make it even more critical that credit card debt is gradually or in some cases immediately reduced or eliminated.

The introduction of paypal, Visa and Master DEBIT cards and other forms of electronic payment, in conjunction with ridiculously high costs of using credit cards, leaves us with no reason to maintain a credit card.

Whilst our core business is providing home loans, car loans and business loans to clients, it is also our business to ensure our customers are properly educated in financial services more generally. Credit Cards can no longer be seen as a useful product.

  • They are high cost
  • They reduce your capacity to borrow money for useful purposes They are a typical cause of financial stress They are a common cause of a poor credit score In fact we can not think of a single reason why a credit card should be used for a purchase.

If you are looking at finance for a new home or a new car or any other reason in 2019 we suggest you either payout and close your current credit cards OR consolidate your credit card debt IMMEDIATELY

If you don’t think you will need finance for another purpose in the near future, then you should consider paying out and closing OR consolidating your credit card debt sooner rather than later

Either way, you can do this with your current bank OR you can call us on 1300 422 506 or 0433 181 544 and we will assist with the best way forward.