Families Struggling To Stay Out Of Debt

According to Veda Advantage, our biggest credit reporting agency one in six Australian is still struggling with debt consolidation. Many families are stuck in a financial corner with no other option than to take on more debt to survive.

With the RBA’s rate increases it seems they are confident about our economy but that doesn’t change the fact that the rate rise has hurt those already suffering even more. eneral manager with Veda Advantage, says the list of statistics is quite concerning.

A general amanger with Veda, Russell Evans said: “There is a pocket of society that are doing it tough and that may be because of unemployment. It may be because of a number of environmental factors that they’ve been subject to.”

The Australian debt trap:

In the past three months alone some 12 per cent of Australians have missed making their minimum monthly credit card payment. Mortgage holders said 13 per cent of them were late on a household bill during the same cycle.

Close to 25 per cent of people who struggle with their repayments and bills reported they are owing more money now than a year ago. Mr Evans is also worried about the number of borrowers who plan to apply for more debt even though they are struggling to meet their current commitments. He said:

“A fairly large proportion – so 20 per cent – are actually looking at taking on additional credit or applying for additional credit over the next 12 months.”

“Lenders do not have visibility on the number of outstanding credit commitments or the number of credit commitments in place for the borrower and how they’re currently meeting or what their payment history looks like. So the capacity of a lender to establish the true capacity to repay for a borrower is largely diminished.”

New government rules about responsible lending:

The new Federal Government rules on responsible lending are said to pass the Parliament this month, after which they come into effect in January 2011.

Mr Evans predicts that most lenders will end up struggling with the new rules unless they get better information about their clients.

Consumer groups on the other hand remain unconvinced about the merits of expanding credit data files.

Carolyn Bond, the co-chief executive of the Consumer Action Law Centre, says that if lenders are given access to more information, they can use it to lend responsibly.

She said: “However in practice in the United States, lenders had access to more personal information than any other lenders in the world and that was an absolute disaster in the United States.”

“That’s not what the system lenders want here but we need to be very careful before just trusting lenders with all that personal information.”

“They’re trying to lend to those people who won’t pay off in the interest free period, who end up paying 30 per cent interest. They’re looking for people who maintain high credit card levels. And in there there are people, some people, who are in difficulty and often those people are actually targeted by lenders. And more information could actually exacerbate that.”

Source: ABC.net.au

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