Bad Debt becomes an Australian Epidemic
BAD debt has become an epidemic in Australia, according to Australian Mortgage Options managing director, Robert Projeski.
Spiralling costs for the average household means many people were struggling to live within their means.
Robert Projeski said that he had seen the level of bad debt grow from a concern among isolated sections of society to an epidemic.
"Getting into debt is easy" he said." Being able to control debt is the hard part. It is extremely common for individuals to be juggling as many as two personal loans and three credit cards at the same time. Sooner rather than later it is simply too much to cover, especially if you already have a mortgage."
He said wages could only stretch so far and it could be difficult to avoid being susceptible to bad debt, particularly with petrol prices and rising interest rates eating into the weekly budget.
Debt consolidation was not only a viable option to ease the strain of bad debt, but was essential in many cases.
"One option for people in this position is to see their financial institution and consolidate their debt into one loan because the savings each month can be significant" he said.
"To illustrate the effectiveness of debt consolidation, an average mortgage with debts of $304,437 from a home loan, two personal loans and three credit cards could accrue monthly repayments totalling an imposing $3537. By consolidating their outstanding debt into one loan of $342,000, they would save $1556 a month in repayments with additional cash of $34,750 for a range of other purchases, from value-adding home renovations to share market investment."
Staying Afloat
Although the headline interest rate on the mortgage is an important factor to consider, its equally vital to examine the key features, benefits and costs of taking and maintaining your loan.
With a further interest rate hike hanging like a dark cloud over Australian homeowners, its crucial to ensure that your home loan remains in top shape.
Although the headline interest rate on the mortgage is an important factor to consider, its equally vital to examine the key features, benefits and costs of taking and maintaining your lain, such as account keeping fees, fees for taking money back out of the account, monthly fees and annual review fees.
Costs like these can equate to well over 0.25% of the loan. The cost for things like redraws could end up totaling 0.5% on top of the rate, which means you have to look at the total costs associated with your particular loan account to ensure you are benefiting from all these features.
Consider a line of credit
This product maximizes your cash flow in a regular basis and if used wisely- and the emphasis is on wisely here - can help you pay off your home loan sooner. The way its structured is that all your cash flow foes into your loan account and a credit card is usually linked to the home loan account. Most or all of your expenditure will go on that card and you use the banks money for an interest-free period of up to 55 days.
Your money is in your home loan account, so your balance is lower for that particular period. AT the end of that interest-free cycle, an 'auto sweep" normally comes out of your home loan account. Your money that is in the loan account for that period pays expenses incurred during the interest free period on your credit card. This method can be effective, but make sure your expenses are paid in full and your spending doesn't increase.
Consolidate your debts
Retain a variable loan and consolidate household expenditure: credit cars, other personal loans and any store accounts that might have been interest free but rolling over in the near future. By consolidating repayments and ash out of your pocket, expenditure is reduced on a monthly basis. Allocate some of the savings to make extra repayments on your home loan.
Interest is calculated daily and the more money in your home loan the lower your balance. The lower your balance, the less interest you have to pa for a particular month and ultimately for the term of your home loan. You'll still be susceptible to interest rate fluctuations and any interest rate rises in the short to medium term.
Fix all or a portion of your mortgage
You can fix a portion of your entire loan, but sometimes fixed rate loans aren't flexible and there can be penalties if you make large lump sum repayments. There can be restrictions in regard to being able to take the money out again if you do make extra repayments. However you have peace if mind for two to ten years at up to 0.5% off the major banks standard variable home loan rate.
There are products in the marketplace that can offer the best of both worlds with the protection of a fixed rate and flexibility of a variable product. Your money works for you like a line of credit, but the benefit of this type of product is that you're using your own money. You can't spend what you don't have; only what's there. A direct debit, a linked savings account to your loan account still comes out of the account.
You can lock the rate in, link your savings account to your loan account and have access to ATM cards to use your own money. With these loans its hard to get into trouble as your spending your own money. The money is the linked account is being subtracted from your principal loan account.
By Robert Projeski, Managing director
AMO (Australian Mortgage Options)
Debt consolidation [http://amo.com.au/index.php/borrower-types/consolidate-debt]
Home loan refinancing [http://amo.com.au/index.php/home-equity-loans-refinancing]
Refinance your mortgage [http://amo.com.au/index.php/home-equity-loans-refinancing]
Spiralling costs for the average household means many people were struggling to live within their means.
Robert Projeski said that he had seen the level of bad debt grow from a concern among isolated sections of society to an epidemic.
"Getting into debt is easy" he said." Being able to control debt is the hard part. It is extremely common for individuals to be juggling as many as two personal loans and three credit cards at the same time. Sooner rather than later it is simply too much to cover, especially if you already have a mortgage."
He said wages could only stretch so far and it could be difficult to avoid being susceptible to bad debt, particularly with petrol prices and rising interest rates eating into the weekly budget.
Debt consolidation was not only a viable option to ease the strain of bad debt, but was essential in many cases.
"One option for people in this position is to see their financial institution and consolidate their debt into one loan because the savings each month can be significant" he said.
"To illustrate the effectiveness of debt consolidation, an average mortgage with debts of $304,437 from a home loan, two personal loans and three credit cards could accrue monthly repayments totalling an imposing $3537. By consolidating their outstanding debt into one loan of $342,000, they would save $1556 a month in repayments with additional cash of $34,750 for a range of other purchases, from value-adding home renovations to share market investment."
Staying Afloat
Although the headline interest rate on the mortgage is an important factor to consider, its equally vital to examine the key features, benefits and costs of taking and maintaining your loan.
With a further interest rate hike hanging like a dark cloud over Australian homeowners, its crucial to ensure that your home loan remains in top shape.
Although the headline interest rate on the mortgage is an important factor to consider, its equally vital to examine the key features, benefits and costs of taking and maintaining your lain, such as account keeping fees, fees for taking money back out of the account, monthly fees and annual review fees.
Costs like these can equate to well over 0.25% of the loan. The cost for things like redraws could end up totaling 0.5% on top of the rate, which means you have to look at the total costs associated with your particular loan account to ensure you are benefiting from all these features.
Consider a line of credit
This product maximizes your cash flow in a regular basis and if used wisely- and the emphasis is on wisely here - can help you pay off your home loan sooner. The way its structured is that all your cash flow foes into your loan account and a credit card is usually linked to the home loan account. Most or all of your expenditure will go on that card and you use the banks money for an interest-free period of up to 55 days.
Your money is in your home loan account, so your balance is lower for that particular period. AT the end of that interest-free cycle, an 'auto sweep" normally comes out of your home loan account. Your money that is in the loan account for that period pays expenses incurred during the interest free period on your credit card. This method can be effective, but make sure your expenses are paid in full and your spending doesn't increase.
Consolidate your debts
Retain a variable loan and consolidate household expenditure: credit cars, other personal loans and any store accounts that might have been interest free but rolling over in the near future. By consolidating repayments and ash out of your pocket, expenditure is reduced on a monthly basis. Allocate some of the savings to make extra repayments on your home loan.
Interest is calculated daily and the more money in your home loan the lower your balance. The lower your balance, the less interest you have to pa for a particular month and ultimately for the term of your home loan. You'll still be susceptible to interest rate fluctuations and any interest rate rises in the short to medium term.
Fix all or a portion of your mortgage
You can fix a portion of your entire loan, but sometimes fixed rate loans aren't flexible and there can be penalties if you make large lump sum repayments. There can be restrictions in regard to being able to take the money out again if you do make extra repayments. However you have peace if mind for two to ten years at up to 0.5% off the major banks standard variable home loan rate.
There are products in the marketplace that can offer the best of both worlds with the protection of a fixed rate and flexibility of a variable product. Your money works for you like a line of credit, but the benefit of this type of product is that you're using your own money. You can't spend what you don't have; only what's there. A direct debit, a linked savings account to your loan account still comes out of the account.
You can lock the rate in, link your savings account to your loan account and have access to ATM cards to use your own money. With these loans its hard to get into trouble as your spending your own money. The money is the linked account is being subtracted from your principal loan account.
By Robert Projeski, Managing director
AMO (Australian Mortgage Options)
Debt consolidation [http://amo.com.au/index.php/borrower-types/consolidate-debt]
Home loan refinancing [http://amo.com.au/index.php/home-equity-loans-refinancing]
Refinance your mortgage [http://amo.com.au/index.php/home-equity-loans-refinancing]