Tony Devlin, a senior
Financial Counsellor at
Salvation Army's
"Moneycare" service, has
interviewed hundreds of level 1 and level 2 Australians who have incurred huge
debts on multiple credit cards.
"There are far more middle-income earners seeking a way out of the desperate
cycle of huge mortgage repayments and mounting credit card debt.........And
people try to keep the ship afloat by using more credit cards."
The Writerspoke to Tony Devlin on Wed 7 Dec '11. Tony told me "It is not uncommon to meet
people in financial trouble who had significant debts on between
6 and 10 credit cards."
Mr Tranter, who earns $670 a week
after tax as a bus driver, says his application for a credit card was
approved in April this year despite having a blemished credit history
and falling behind in repayments for existing debts. He applied for the
(second) credit card online and spent the entire $2,000 limit "on rubbish"
shortly after receiving it.
Since then, he has struggled to make the monthly repayments on his card
which, he says, has an interest rate of about 18%.
"I feel resentful to the people that
gave me the loans … I don't know how I got them. With my previous credit
history I don't know how I got approved," he says.
Mr Tranter has contacted Financial Counselling for help and is planning on
filing for bankruptcy. The debt, he says, has become too much to bear.
"It's the end for me, I can't do it," he says. "It (bankruptcy) is a relief
because it will stop these arguments with creditors and these annoying phone
calls
and it will just make my life a little bit easier."
Choice head of
campaigns Matt Levey said the banks were exploiting customers'
failure to understand the full cost of making payments on credit, with more
than $35 billion in credit card debt accruing interest each month.
''It's basically just [banks] taking
advantage of a product that's poorly understood. While there's an extensive
media spotlight on home loans, it seldom extends to credit cards,'' Mr Levey
said.
''Interest rates range from as low
as 8.99 per cent to perhaps as high as 21 per cent so it's quite a large
difference and that can have a material impact on how much interest you are
paying per month,'' he said.
"According to the
Reserve Bank its
charter (carried on its
website), says it is required to "ensure that the monetary and
banking policy of the Bank is directed to the greatest advantage
of the people of Australia".
Moreover, in seeking this advantage, the charter requires the
bank to pursue "the stability of the currency of Australia; the
maintenance of full employment in Australia; and the economic
prosperity and welfare of the people of Australia". This is all
part of the Reserve Bank Act 1959.
With unemployment in certain sectors - notably banking - now
on the increase, the element of the bank's charter that calls on
it to maintain full employment is coming in for understandable
attention. The bank has at its disposal one blunt instrument:
interest rates.
As The Daily Telegraph
reports, economist William
Mitchell, of the University of Newcastle, believes that
instrument is not being used in the correct way."
Ms Southon says it's not surprising that more Australians are sliding into the
debt every month, with credit card companies constantly devising new ways to
lure cardholder to make more purchases and conduct more transaction, such as
rewards programs and special offers.
Blinded by the incentives, consumers lose sight that credit cards are one of the
most expensive ways to borrow money, she says.
"Lives can be destroyed by credit card debt, more couples break up over
financial stress than infidelity," Ms Southon says.
Analysis by comparison website Mozo found on a card with the Australia average debt of $4,400 and a high rate
of 23.5 per cent the interest paid would soar into tens of thousands of dollars.
If only the standard repayment of 2 per cent, or $20 per month, was made the
cardholder would fork out more than $71,100 in repayments including more than
$68,400 in interest repayments.
Ratecity’s chief executive officer Alex
Parsons said making minimum credit card repayments was a dangerous move.
“You can end up having credit card debt for as long as a home loan and not end
up with a home at the end of it,” said.
Reserve Bank of Australia data show
consumers owe a massive $49.7 billion on credit cards, of which more than
$34 billion is accruing interest. Our collective interest cost in the
past 12 months was $6.2 billion.
New research bycreditcardfinder.com.aufound
40 per cent of Australians are unaware
of their card's interest rate despite Reserve Bank of Australia figures showing
the nation owes $49.9 billion on cards including $35.4 billion accruing
interest.
CreditCardFinder publisher, Jeremy Cabral, said the naivety of Australians and
their debts was concerning, particularly with interest rates on cards often
around 20 per cent.
According to the latest Reserve Bank figures,
total credit card debt is currently just
over $50 billion, and has been between $48 and $50 billion for the past two
years.
A RateCity survey in December showed 11 percent of
respondents were making minimum repayments to pay off their debts – that’s
potentially 1.7 million credit cards.
"In fact, by making the minimum monthly repayment of 2
percent on average, the average credit card balance of $3,282 would take 24
years and five months to pay off, based on the average purchase rate of 17.21
percent, according to RateCity. At this rate, you could be still paying off your
credit card debt after you finish repaying your mortgage!" Hutchison says.
Figures from credit reporting agency Veda
show the number of customers defaulting on their credit cards has increased
steadily throughout the year, rising by 15 per cent in the year to August.
"It really is the canary in the coalmine if you cannot
pay your credit card."
The company, which holds some 16 million consumer credit files, says there
has been a year-on-year rise in defaults in almost every month since
January, the trend worsening in the last few months and spiking at 29 per
cent in July.
A default occurs when a bill of more
than $100 is not paid within two months.
Banks and other businesses that extend credit to households, such as
utilities, are also calling in the debt collectors more frequently.
Debt collection agency Dun & Bradstreet
said the number of consumer debts
referred to it rose almost 5 per cent in the June quarter, on top of growth
of more than 15 per cent in the March quarter.
Choice head of
campaigns Matt Levey said the banks were exploiting customers'
failure to understand the full cost of making payments on credit, with more
than $35 billion in credit card debt accruing interest each month.
''It's basically just [banks] taking
advantage of a product that's poorly understood. While there's an extensive
media spotlight on home loans, it seldom extends to credit cards,'' Mr Levey
said.
Eight million Australians trying harder than ever to clear
credit card debt are being thwarted by sky-high rates. In the 18 months prior to
Christmas, $3 billion was wiped off plastic — the most sustained decline since
the Reserve Bank began keeping records in 1985.
However, Australians still owe $34.2 billion and are being
charged $6.2 billion of interest annually — $800 per Cardholder.
The
Credit Card Issuers 'hired gun',
Steven Münchenberg, previous Chief Executive, Australian Bankers’ Association, provides
an article that the average debt on credit cards has fallen, which overtly
ignores that this is because:
Re:
"Regardless of the reasons, the shift has been pronounced and consistent for a
number of years now. While there are
always Australians who struggle to stay ahead, and we might all be
happier if we owed a bit less on our credit cards,
there’s no evidence that we’re being
ground down by a mountain of credit card debt. In fact, overall Australians
have managed their credit cards sensibly and responsibly."
".....there are "pernicious effects that
inequality has on societies: eroding trust, increasing anxiety and illness,
(and) encouraging excessive consumption".[5]
It claims that for each of eleven different health and social
problems:
physical health,
mental health,
drug abuse,
education,
imprisonment,
obesity,
social mobility,
trust and community life,
violence,
teenage pregnancies, and child well-being, outcomes are
significantly worse in more unequal rich countries."
Tom
Godfrey, the spokesman for consumer group, Choice, said the new data showed fees
on cash advances through credit cards had been steadily increasing.
The
detailed report on bank fees is published each year in the Reserve Bank’s June
quarter Bulletin.
Given the high rates, the inability to mostly pay off credit card balances in
full is a sign of an individual not
really being in control of their finances.
When the balances keep rising and
regularly only the minimum amount is paid off, the individual is financially out
of control.
The Washington Postreports
the percentage of cardholders who paid off their balances in full in the fourth
quarter of 2013 was 29 per cent – the highest such figure on record.
Too bad about the other 71 per cent.
At her worst, she was
shopping online every night, hiding more than $25,000 worth of debt on a credit card
that
her partner didn’t know about. “I was buying anything and everything,” said
Lucy. “Toys for the kids, hundreds of lipsticks, books – it didn’t matter as
long as parcels kept coming. I believed I needed and deserved all the stuff but
as soon as I unwrapped it I felt guilty and empty - so I’d shop again.”
In 2002, television
journalist, Karyn Bosnak amounted a $20,000 debt from shopping addiction. When
she lost her job, she created a website savekaryn.com which asked the public to
donate one dollar toward her debt. The plan worked and Karen went on to change
her life, break the addiction and writeSave
Karyn: One Shopaholic’s Journey to Debt and Back.
Professor Lorrin Koran, Director of the Psychiatry and Obsessive-Compulsive
Disorder Clinic at Stanford University Medical Centre, described compulsive
shopping as a behaviour that has “serious and unpleasant consequences, and one
of public concern”.
In 2001, Koran was involved in one of the biggest studies on compulsive
shopping. Preliminary findings from Koran’s research indicated some compulsive
shoppers generated large credit-card debts. “Severe cases have been known to
take out second mortgages on their homes, declare bankruptcy, and subsequently
divorce.”
“People with a compulsive shopping disorder often can’t stop thinking about
shopping and can’t control the impulse to purchase items, “ Koran said. “These
items are often stored and not used. They are wanted at the time of purchase,
but often not seen as useful or valued some short time after the purchase.”
Figures released by the Australian Consumers’ Association reveal that almost
half of all Australian households are in debt. Shopping is fast becoming a
national pastime and with it seems to be an increasing number of Oniomania, or
compulsive shopping, cases being reported. In fact, recent claims suggest up to
one in 12 Australian shoppers are sufferers of the disorder.
Oniomania is the medical term used to described compulsive shopping. It’s
usually a response to low self-esteem, anxiety, depression, loneliness or anger.
When these feelings intensify, so to does the urge to splurge.
Retail therapy is a “pick me up”. Spending substitutes for an emotional void,
providing a quick fix. But this temporary lift soon reverts back to feelings of
guilt, anger and depression, taking the shopper back to square one, emotionally,
but in more chronic debt. This in turn triggers another compulsion to shop,
starting the vicious cycle all over again.