Australia has just hit the $50 billion mark for our national credit card debt, according to ASIC. It has been revealed that credit cards are a debt trap for more than one in six Australians who are struggling with debt. In the 2016-17 Financial Year, Australians spent an estimated $621 million on interest and fees, and it’s time that someone stepped in and protected hard working struggling Aussies. At Debt Rescue, our studies have shown that credit card debt accounts for over 40% of our clients financial struggle, clear evidence of a deeper issue.
Enter ASIC. The Australian Securities and Investments Commission (ASIC) are the government body who regulate all things corporate and financial, existing to protect Australian consumers. If anything fishy starts happening, and the numbers just aren’t adding up, they will don their investigative cap and work out what has gone wrong.
In this case, ASIC have queried why Australian’s have ended up in so much debt. More importantly, who put them there. American Express, Citi, and Macquarie, amongst others, were found to have been applying the pre 2012 rules to existing cardholders. This means they were offering to increase your credit card limits without making sure you would be able to make the repayments. Hence the excess debt!
Without an actual timeline to aim for, it was difficult for lenders to work out whether increases were achievable. Essentially, if you had a $10,000 limit in 2010, and had increased $5,000 each year since then, you could be now sitting on a $50,000 limit. That may seem wonderful and lovely, especially if you want a nice holiday or other ‘necessities’. But what if you just couldn’t afford the repayments?
The other thing to remember with credit cards, is that hefty interest rate. Some cards are sitting at around 20%, and even more on cash advances. It is an uphill battle for the average Aussie, just to pay off the interest each month. However, many lenders do in fact offer “interest free for 12 months” cards, and the ability to swap balances. If you were lucky, your bank would have noticed your struggle and offered a change to a lower rate. Or at least some advice!
ASIC have now proposed some important changes to credit card lending, to protect struggling Aussies from credit card debt traps
• Lending assessments include the consumer’s ability to repay the entire limit amount within 3 years or a set period
• That the limit amount is offered not by the consumer’s ability to make minimum repayments. Rather, a more substantial amount (to include interest and fees).
By tightening the reigns on credit card lending, Australian’s will find themselves protected. With these reforms we will hopefully see a decrease in financial hardship, and an increase in debt management and financial freedom. Gone will be the days of juggling large interest cards just to make ends meet.
These changes are due to come into effect from January 2019, albeit with credit card providers likely putting up a fight. Until then, be aware and do your research before committing to further debt.
We can help with your credit card debt!
If you are struggling with debt, Debt Rescue are leading providers of debt relief solutions. Debt Rescue help everyday Aussies deal with debt, even when life throws a curveball. We can help you become stress free, and debt free.
Call today for an obligation free chat and some helpful advice with our friendly Case Managers on 1800 00 3328. We can rescue you!