Are you Mr. Average when it comes to borrowing money?

Are you typical of Australian borrowers? Needing a couple of hundred dollars to tide you over until pay day? Or have you sat down, prepared your budgets and are on top of your personal finances, knowing what’s coming in and when and what’s going out and when?

There is very little middle ground here – unless you are the latter you may well be the former!

The New Study by the Commonwealth Bank of Australia

The Commonwealth Bank recently surveyed about 2,000 people and found that the average person borrows $200 per month to make it to the next pay day, quite apart from any other lines of credit that they have like home loans, credit card balances, car loans or personal loans.

This means that $1.6 billion is borrowed “off the books” from family, friends and colleagues as “emergency” credit until pay day arrives.

One in four Australians borrow money from people close to them, who want to help loved ones out; usually these are informal arrangements with a “pay me back when you can” type of approach, rather than having anything in writing.

Young City Dwellers Borrow the Most

It was found that young females who are city dwellers borrow more than males, those over the age of 24 or those living in rural areas. This would point to immaturity and lack of experience and responsibility in dealing with money and finances being major factors.

Young women may not have a job and lack the experience and know-how to seek loans from banks, so they often look to informal ways to borrow what they need to get them through.

As they mature and have families, they are forced to act more responsibly and make wiser choices with their money.

Broken Relationships

Not surprisingly with these informal arrangements, where no loan documents are drawn up, problems sometimes arise and relationships can be strained over non-repayment of loaned cash. One in five of the respondents in the survey admitted this had happened.

The average figure of $200 is perhaps a little misleading because some respondents never borrowed anything, or just needed $50 from their mothers to see them through, whilst others had borrowed $20,000 from friends or family for a home loan deposit.

In the latter case it’s essential to draw up legal documents and have the repayment arrangements clearly spelt out on paper, to avoid problems down the track.

Without preparing a budget, with a household to run, finances can become a nightmare; with a little planning and preparation the days of needing pay day loans or asking friends or relatives for a temporary loan can be shown the door permanently.

Beware! Overrated credit card features

As you’re trawling through the various personal finance sites, checking deals and comparing credit cards online, bear in mind that some of the features you are unlikely to use, so they are essentially irrelevant and should not even enter into your decision-making process!

It’s amazing how we can get caught up in the “peripherals” and sometimes miss the main features that will directly affect us day to day.

Being aware of the features that you may not need is the first step to choosing the features that actually matter and will probably save you costs on your card. Here are some very likely candidates:

1. Reward Schemes that cost more than they ever Reward!

Unfortunately I don’t have statistics at hand but I wonder how many unclaimed rewards points are sitting on Australian credit cards that will never ever get used? I think it would curdle the blood to know! Rewards are often presented as a highlight feature of a credit card but many end up costing more in interest payments than they ever provide in tangible rewards.

2. Concierge and Travel Services

Many of the privileges that are tagged on to premium credit cards like gold and platinum Credit cards never get used; of course if you travel overseas or domestically regularly on business then the insurance, VIP lounge, car hire services and concierge can be great – but most people don’t require this for their two week visit to Bali every year! You’ll be “paying” for these services through a high annual fee on the credit card, more often than not.

3. Price Protection

This is another credit card extra that is often touted as a great perk. If you are in the habit of buying something and then shopping around to see what price you could have got it for elsewhere, then perhaps I am out of touch with buying habits. I guess this could happen by accident on occasion, but my suggestion would be to shop around and compare prices BEFORE you make the purchase – it makes a whole lot more sense.

4. Choice of Designs

I don’t know if you agree, but choosing a credit card because of an attractive colour or design seems dangerous! Don’t have your head turned – stick to what’s important and that’s the main features.

5. Additional Cardholders

Unless you are long-term partners with joint finances or a married couple, then do you really need the 4 additional cardholders that a card advertises? In some circumstances it may be beneficial but generally they are neither required nor used – so don’t let them influence your decision.

We’ve said it before and we’ll say it again – focus on matching the key features of the credit card (APR, annual fee, interest free period, balance transfers rate if applicable) to your buying and repayment habits and leave the peripheral features out of the decision-making process unless everything else is equal. Happy (and informed) hunting!

He’s probably NOT off to apply for a home loan!

While there are plenty of good intentions around, it’s not converting into home loans activity in the Australian housing market.

If evidence from the latest QBE Lenders Mortgage Insurance survey is anything to go by, people are sitting on decisions to buy until they are more confident that the worldwide financial problems have settled.

The QBE Lenders Mortgage Insurance Survey

This survey, by one of Australia’s largest lending insurers, conducted across the country with 1162 participants, found that 60% of Aussies intend to buy property within the next five years; of these, one in five were hoping to buy in 2012.

The state break-down shows that West Australians were the most eager to buy and those in NSW were second.

Although, compared to last year, these figures show a decline in the number of people looking to buy a property over the next 12 months and a greater decline in those intending to buy in the next 24 months, there is reason for optimism amongst home loan providers.

The number of potential first home buyers (those intending to buy) has increased from 15% last year to 18% this year. One in five of these said they had a guarantor for their loan (usually parents) which also continues the growth of a trend we saw last year.

Figures also showed that, of the people intending to buy in the next five years, almost 70% said they would by an existing property rather than a brand new home.

Will More Interest Rate Cuts Spur Buyers on?

The big question facing the reserve Bank of Australia in the coming weeks and months is whether further interest rate cuts, on the back of the year end cuts in 2011, will convince buyers that now is the right time to take the plunge?

In the survey around one in four people suggested that further cuts might convince them to buy sooner rather than later, though most admitted that the cuts last year hadn’t really affected their intentions.

Other Findings

Despite the recent announcement by ANZ to raise its home loan rates again, the overwhelming sentiment from the survey seems to be that the buying intentions are there – it’s a question of picking the moment, again reflecting some uncertainty with the global financial situation.

Over half of the Australians questioned believed the property prices would stabilise or increase over the next three years.

If you’re looking for an Australian home loan, take time to compare the different deals from both the big banks and smaller lenders; small differences in interest rates make huge differences to payments over the course of a home loan.

Be patient when saving for your home loan deposit

For first time home buyers saving for a home loan can be a daunting task and that deposit can seem far, far away at first.

There is nothing that a little perseverance and discipline cannot achieve and below we take you through how you can work towards the deposit you need for the house you’re after.

Aim High

When we say “aim high” we are not talking about buying a bigger, better house than you actually need.

You do need to “aim high” with your deposit though – the larger deposit you can save the less you will pay on your home loan: you may get a better interest rate, you will pay no lenders mortgage insurance (if you save at least 20% of the property value) and, over the course of the home loan, your interest payments will be lower because you have not borrowed so much money and can pay off your loan quicker.

How Much Do You Need”

First, work out roughly how much you need to save.

Do this by first seeing how much you can borrow, in your current circumstances. Use a maximum borrowing calculator to enter all the incomings and outgoings and this will give you a guideline of how much lenders will usually be willing to loan you.

Use a separate home loan calculator to work out what this maximum typical loan will break down into, in terms of monthly repayments – verify that you can afford this.

Also check auction sites and verify that there are properties around this price range in your area, which will suit you. If not, then you need to have a re-think.

If so, then crunch the numbers of what a 20% deposit works out to be – and, essentially, that’s your savings target figure.

Ways of Saving

Depending on your targets and dates, there are plenty of ways of building your deposit without huge lifestyle changes or job promotions.

Most importantly, create a budget and stick to it. Yes, there will be cutbacks but, in truth, many Australians can make sensible cutbacks to unnecessary expenditure without even trying too hard; sit down with your partner, if applicable, write down all the essentials (rent, bills and food, rather than the new iPad)and identify where the “easy gains” are; some people even move back to the family home to cut back on rent.

Don’t over-stretch yourselves but write your goals down and commit to them; then put your money where it will grow fastest.

Online Savings Accounts

Search online finance sites for high interest savings accounts to “park” your money while you save; you can usually arrange for your salary to be paid into the account.

Every little bit helps so a marginally lower interest rate can still make a difference. Don’t just settle for an everyday transaction account that offers next to no interest.

You can even find first home saver accounts specifically designed to help you save your deposit.

Following the above steps will help first time buyers save their home loan deposit quicker so they will be turning the keys in the door of their own home a little sooner.

Cash advances - does it make sense to wait on that purchase?

There are positive signs that Australians are starting to use their credit cards more conservatively and are beginning to tackle their debt problems.

In February 2012, the number of credit card cash advances hit their lowest level since 1996 – below 2 million – and this is continuing a trend that has been established in recent years for people to cut down on this type of credit.

This comes on the back of Reserve bank of Australia figures that the average credit card balance last year grew by its lowest rate since records began in 1995.

Why are Cash Advances Good for the Banks…but Bad for You?

The banks love cash advances because they charge a high rate of interest – in Australia over 20% generally – and this interest starts accruing from the day of the withdrawal; there is no interest-free period on these transactions.

Credit cards and personal loans account for about 20 per cent of the banks’ retail income so any losses to these personal borrowing revenues need to be replaced by other means, in the eyes of the banks.

But, for you, using cash advances mean that your monthly credit card statement may contain a few surprises; you need to watch as your interest payments balloon.

Can That Purchase Wait?

Other than in exceptional circumstances, there are better (cheaper) ways to get cash.

Ask yourself- can that purchase wait until you can buy it with your own cash, rather than borrowing at high interest?

Other people use cash advances for bill payments; if so, then it’s time to re-budget; cash advances should not be used to cover regular monthly bills, because these should be the first things you account for in your monthly expenditure.

If you need to re-budget, sit down with your family and consider what ways you can cut back on non-essentials so that the essentials are all covered without having to borrow money at high interest.

Failure to Plan Can Be Costly

The “hole in the wall” ATM is often seen an easy option for cash if you have no money left in your bank account to withdraw.

Lack of planning or foresight catches people out and they need “emergency” funds from the ATM to tide them over; they forget that a repayment or bill is due and not keeping the necessary funds at hand.

Budgeting and setting payment reminders on calendars, computers or phones can help with this – or why not set up a system of direct debits to pay bills?

Why not leave your credit card at home when you go out? Use your debit card instead – that way you can be sure you are only spending what you have and are not incurring interest charges. If you need cash, take it out when using Eftpos.

That’s nothing revolutionary – a few small changes in your credit card usage can make a world of difference to your personal finance.

Who’s watching and how are you protected?

Whenever you use your credit card, an ATM or make any electronic financial transaction, there is a slight risk of something going wrong; we all know that computers and machines have faults and can be open to manipulation or fraud.

In fact several high profile fraud cases have recently raised their head and have got many Australians wondering how they are protected by legislation.

Below we take a look at the Electronic Funds Transfer (EFT) Code and how it affects your financial transactions.

The EFT Code

Basically the EFT Code is a code of practice created by ASIC in 1986 and revised a few times since; almost all Australian banks, building societies and credit unions have signed up to this code and the good news is that it protects you when you are making EFTs.

It covers you for withdrawing cash at an ATM, buying goods or services using EFTPOS, banking over the phone or Internet, using your credit card over the phone or Internet and even using a prepaid phone card.

You can read or download a copy of the entire EFT Code here: http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/eft-code-nov2008.pdf/$file/eft-code-nov2008.pdf

Account Holder Liability

One of the key passages in the code refers to Account Holder Liability – covering who is responsible when fraudulent activity or unauthorised transactions take place.

Here it states that:

“The account holder has no liability for:

(a) losses that are caused by the fraudulent or negligent conduct of employees or agents of the account institution or companies involved in networking arrangements or of merchants or of their agents or employees;

(b) losses relating to any component of an access method that are forged, faulty, expired, or cancelled.”

It goes on to say: “The account holder has no liability for losses resulting from unauthorised transactions where it is clear that the user has not contributed to such losses.”

ePayments Code

Most people still refer to the “EFT Code” but, in actual fact, it was superseded by the “ePayments Code” in Sept 2011, when ASIC released new guidelines that covered all electronic payments including ATM, EFTPOS and credit card transactions, online payments, internet and mobile banking, as well as BPAY.

The transition from the EFT Code to the ePayments Code will be complete by March 2013.

What Does This Mean To You?

Remember that the codes only protect customers of institutions that have signed up to them. You can verify this by checking the ASIC register of subscribers or by checking terms and conditions on your financial institution’s products.

The code does not mean you don’t have to take the usual security precautions when using an ATM, credit card over the Internet or making an EFTPOS transaction.

Use common sense and remember that credit card fraud is on the rise and much of it is due to account holder negligence. It is a major inconvenience to you and the financial institution involved to be the victim of fraud, so stay alert and vigilant with your transactions.

Is your credit card debt under control?

How much do you think the average Australian owes in credit card debt and how much do their annual interest payments amount to?

The latest figures, according to ASIC, suggest that the total Australian credit card debt, as at April 11^th 2012, is around $37 billion; that equates to around $4,860 per card holder.

Recently that figure has been decreasing very slowly but generally it increases; a tighter economy and a less certain global outlook seems to be making Australians think twice about spending on their credit cards.

Interest payments

These figures above mean that the average Australian is paying over $800 per year in interest charges, assuming an average interest rate of around 15%-20%.

Do you know your annual interest payments? Have you ever worked out your total payments in a year? Imagine what an extra $800 could be used for, just by paying off your balance and making repayments within the interest free period.

Use our credit card calculator to work out how much you can save by clearing more of your debt every month. Enter your current balance, current monthly payment and the interest rate and find out how much your interest payments come down with additional payments every month.

So how do you reduce your debt… and your interest payments?

There are no great secrets to clearing credit card debt. It takes some budgeting, some discipline and some commitment.

Here are some simple solutions that will pay instant rewards in clearing your debt quicker:

1. Stop spending on your credit card

2. Pay as much as you can each month – more than the minimum repayment – even a little extra will make a big difference to your debt

3. Set up a direct debit between your bank account and credit card account to pay off a guaranteed sum of your credit card balance every month (at payday?)
4. If you have multiple cards, make sure you pay off the highest interest rate cards first

5. Shop around and look for better deals – if you are committed to paying your debt off you may be able to take advantage of a balance transfer introductory offer with a very low interest rate.

Taking steps to understand your debt and the interest it generates is the first step to reducing it; once you realise that it is possible to reduce those interest payments significantly and use the money for better things than paying into the coffers of the banks, what more motivation do you need to start reducing your debt?

Secondary credit cards – not for everyone

Secondary credit cards can be a great way for family members to have access to credit through one account, but unless they are used responsibly and monitored they can be more trouble than they’re worth.

Here we take a look at the main pros and cons to help you decide whether secondary cards will be a help or hindrance to your personal finances.

Do You NEED a Secondary Credit Card?

Many credit card offers advertise that you can get up to “9 secondary cards for free” or other such offers that may look great – but do you really need the extra cards?

This depends on your personal situation, as always.

For a married couple who share bank accounts and check statements every month then it can be a great idea to have two cards linked to one account. If the credit card in question is suitably low interest and low annual fee, it saves on having to administer two accounts and one repayment can be scheduled every month to cover balances.

If mistakes are made then penalty fees are only charged once.

Similarly, some rewards cards allow other card holders’ purchases to contribute to the rewards points you earn, so pooling resources this way can win you some extra bonuses.

Where Do the Problems Begin?

Problems may begin if you don’t monitor usage on the card carefully; family members often need to be educated on how to use a credit card effectively or they can start to rack up uncontrollable debt.

The primary cardholder is responsible for the entire debt on the card, so crying “ignorance” of another card holder’s spending will not get you anywhere with the card issuer, if you run into problems. There is no EFT Code that will help you here!

Only provide secondary cards to people responsible enough to respect your spending guidelines and, only then, if you are going to monitor purchases on an ongoing basis.

Unless you decide that you really need secondary cards then close the account or, better still, don’t order the secondary cards in the first place.

Otherwise you may be paying fees for the cards – some are totally free to use but others incur an annual fee, which can be sizable, especially if rewards and privileges are included.

Cancelling a Card

If you decide to cancel a secondary card make sure that you return the card to the issuer. You should check your credit contract for terms and conditions relating to the secondary card, anyway.

In the scenario of a broken relationship, for example, some card companies will hold you liable as the main cardholder, for any spend on a card that you have not physically returned to them. It’s always best to speak to your bank about this, and to check terms and conditions, so there are no nasty surprises.

Secondary cards – only you will know whether they are worth having; understand the pros and cons and see if they make sense for your own financial situation.

Avoid these 10 credit card mistakes

You only have to look at how many Australian credit card holders still struggle with rising balances to see that there are still some pretty big mistakes being made out there.

You can start to get control of your debt by taking some simple steps and avoiding doing any of the following:

Not Comparing Credit Cards before Signing Up

It’s amazing how many people opt for the “easy” choice from their existing bank rather than shopping around and comparing cards for the best rates, fees and features that suit their own lifestyle. All the resources are available online nowadays to make informed decisions.

Missing Expiry Dates and Payment Dates

Introductory deals expire and then the interest rates take a big hike. Not knowing when the new rate kicks in can be very costly – you should set reminders. Also repayment dates should be diarised or set to automatic debit before the due date, so you don’t miss payments and incur extra fees.

Not Reading your Statements

Going through your statements helps you to budget, get a grip on what you’re spending, identify any mistakes quickly and schedule repayments on time. Make a day every month when you go through your finances – including your credit card statements – and stick to it. It will help.

Repaying only the Monthly Minimum

This is a huge mistake. Just because your statement details a monthly minimum payment, paying only this will keep you in debt for years. Try to pay the balance in full each month; if you can’t, then pay as much as you can!

Not Repaying Balance Transfers within the Stated Period

If you’re probably not going to be able to repay your transferred balance in full in the time stated on a card deal, then look for another deal. Find a longer repayment period like 12 months rather than 6 months, even if it means a slightly higher rate. After the deal expires, you will be paying the cash advance rate of over 20% on any remaining balance, so you will be racking up debt quickly again.

Being Blinded by Rewards

Most rewards schemes cost more than they earn you. Make sure that all the main features of the card, like APR, annual fee, interest-free period etc are what you’re after rather than worrying about the shopping vouchers you can get from the rewards program.

Withdrawing Cash on your Card

Most cash advance rates in Australia are currently around 21% or higher. It’s better to wait and save the money for that large purchase you need, rather than paying interest rates that high. If it’s bills to pay then payday loans may work out cheaper.

Not Talking to the Card Company in Times of Trouble

Many card holders view their credit card issuer as a faceless, unapproachable monster! If you are having repayment problems talk to them and see if they can come up with a more manageable payment structure. You may be pleasantly surprised.

Using Retail Credit Cards

Retail credit cards can be a shopping trap. If you find it hard to control your buying impulses definitely do not fall for one of these cards, no matter how many offers are waved under your nose. They usually have high interest rates.

Not Paying off the Balance in Full

Not paying off the monthly balance in full – when you have the means to do so – is like throwing money away. Credit card debt is usually one of the most expensive around, so clearing it as early as possible is vital. Using the interest free period and then paying the balance in full allows you to get 44 or 55 days before you pay – and you never pay any interest!

Avoid the nasty 10 traps above and you will find that your credit card debt is brought under control and you can stop dreading the moment the monthly statement comes through the door!

Need some help switching Australian bank accounts?

Switching between bank accounts in Australia needn’t be too much of a chore but there are some steps to take to avoid a few of the common pitfalls.

Online personal finance sites have made it easy to compare different bank accounts and make the decision to switch a bit easier – you can shop around more thoroughly than before and, if your current deal is not up to scratch, then find another.

How to go about it is all laid out below.

1. Compare Transaction Accounts Online

Personal finance sites like this one list the available bank account deals with their interest rates, minimum balance and account fees. This makes it easy to compare across multiple banks and credit unions.

Research is made easy – use all the tools available to find the one that most suits your needs. Pay special attention to fees, because many of these are often made clear only in the small print. Go beyond the “headline” attractions of an account and delve deeper to find out if it really suits your banking habits.

Also don’t forget to consider access –some accounts are free for Internet-banking only and you pay fees for using a branch.

If you like to keep your accounts with one bank, ask yourself whether you are getting the best deals this way or whether you’d be better off splitting accounts between different institutions.

If you are considering doing this, make sure that there is no special “package rate” provided by your bank, as this may be affected by switching an account to another bank.

2. Transfer your Balance – Don’t forget the Direct Debits!

You can request a list of your direct debit and periodical payments for the past 13 months for all your accounts, from your financial institution.

It’s important to know what the periodic payments are so that when you transfer to another account, those can be transferred too and you don’t damage your credit rating or incur late fees by missing a payment. This includes insurance, bill payments, payments for credit cards or loans and annual fees for memberships etc.

In fact you can provide the 13-month list to your new bank and they can help you set up the payments.

All financial institutions must assist you with switching your account, if desired. They can supply you with industry-standard letters, if necessary, to facilitate the process and, at your request, they can notify your direct debit and credit organisations of your new account details.

If your salary is paid directly into your account make sure your employer is aware of any change to banking details.

3. Close It!

You’re now ready to close your account. Make sure you do actually close it, not leave it dormant – otherwise you may attract account keeping fees or fees for being below the minimum balance.

Call your bank and check what ID you need to provide; then you will normally have to visit the branch in person to close your account.

And that’s all there is to switching bank accounts! It’s not difficult, but many people create problems for themselves by not following the three basic steps outlined above.