On the average Australian credit card debt of $3,400 with the average interest rate of 17 per cent, making only the minimum repayment of two per cent; it would end up costing the customer $7,483 in interest costs and take almost 43 years to pay back. – news.com.au Sept 05, 2014.
Why is credit card debt such a problem in Australia? Why am I, a debt negotiator, finding it difficult to keep up with the demand of reducing credit card debt?
Is it consumerism, lack of education, predatory lending, or pure greed?
My answer? A combination of all four.
Banks, I believe, are making obtaining credit far too easy. Not only is it far too easy, but I believe they don’t do enough research into the applications to confirm that the client can afford the repayments. What checks and balances do the banks make to verify that you can repay the debt? Or if you’re even employed? In my (nearly) nine years of experience dealing with people in severe financial hardship, clients will do anything, including “bending the truth” on their applications, to survive. If your mortgage is in arrears and Bank A is calling you every day to chase a repayment, and you need to put food on the table, what do you do? Most of my clients will, as the saying goes, rob Peter to pay Paul. They take out a credit card with Bank B and use that to make repayments, and so on … until it’s completely unmanageable and often bankruptcy is the only option.
Consumerism. This one is a HUGE factor. We want it, and we want it now! We must have the latest gadget, those new pair of shoes, an extravagant wedding or party. Whatever it is, people are marketed to in the most amazing ways and they are left feeling a void, behind the times, and wanting and yearning for this product or service. We are all guilty of it. We ditch that huge, bulky TV that worked perfectly fine, to get the latest flatscreen on the market. Let me give you an analogy I often use with my female clients; Remember those beautiful pair of knee high boots you saw marked down from $300 to $200? Remember how you thought that discount was too wonderful an opportunity to miss out on? Remember you bought them on your credit card because you didn’t have the cash? Remember how you haven’t paid down that credit card to zero since the day you had it? Did you know you’ve paid $450 for those boots? Not so special now are they?
So, is this clever marketing or are we just greedy?
Lack of education is probably the biggest factor. And it’s not a generational thing. I have clients well into their 60’s who have worked their entire lives, only to accumulate an unmanageable amount of debt and are often left with the option of either selling the family home or being bankrupted. It’s incredibly sad. Moving ahead to today’s youth, I can see the future as being extremely bleak.
With the lack of use of cash and physically depositing money into a bank account, people are not learning how to spend wisely or save. They aren’t actually seeing what they spend leave their hands. This new technology, as much as it’s wonderfully convenient, isn’t teaching us about our spending habits. We are not being taught the consequences of debt. The consequences of not having a healthy credit rating or credit score. Of spending beyond our means or not saving any money.
Try this for an experiment. Take out your weekly allowance and put the cash in your wallet. Every time you order a coffee, buy your lunch, or have takeaway for dinner, watch the cash dwindle down. It hurts. You think twice. There is a certain pain associated with breaking the $50 note or watching your money slowly reduce. We don’t get that experience with “tap and go”, eftpos or pressing “cheque, savings or credit”. This is the part that’s missing. This is the part that teaches you to be more careful with your money. And what about saving money? Gone are the days of putting aside a portion of your money from every single pay, into a savings account. Whether it’s for an emergency, or a holiday, we just aren’t doing it anymore.
In my world of debt negotiations; credit cards, personal loans, mortgages, debt, and bankruptcy, I find it’s OUT OF CONTROL! And it’s a multi-million dollar industry. Do I have a solution? I have one. I wish I had many more. I wish we could stop the problem before it became the problem. Education, I believe, is the best answer but whether or not this will bypass the easy access to credit and the level of consumerism that grips our current lifestyles, I don’t know if it will make any difference.
I wish it would …