Interview With Choice Magazine: We Talk About The GFC, Recession and Personal Debt

Just this week the Credit Letter Blog was invited to interview Choice Magazine’s Media Spokesman Christopher Zinn and report author Uta Mihm to coincide with their timely new Debt Relief Report which covers ways in which you beat the financial crisis and come out the other side financially on your feet.

Question: Extreme cases of consumers carrying up to $400,000 in credit card debt are extreme and hopefully very rare. Are there certain age groups, people groups who are more likely to develop major debt problems?

According to the latest government statistics: 19% of bankrupts were between the ages of 15 and 29, 27% were between the ages of 30 and 39 and 53% were over 40.44% of bankrupts were not employed at the date of bankruptcy (includes unemployed, pensioners, self-funded retirees and those engaged in unpaid domestic duties).

In the 12 month period immediately prior to bankruptcy, 4% of all bankrupts declared no income, 11% had an income of less than $10,000, 47% had an income between $10,000 and $29,999, 25% had an income between $30,000 and $49,999, 9% had an income between $50,000 and $69,999, and 4% had an income of $70,000 or higher.

Question: What type of financial product is it that causes people to hit further personal financial trouble?

The greatest liability for bankrupts are credit card debt and unsecured personal loans – a real problem occurs when consumers get into trouble sometimes through no fault of their own such as sickness, family break-up or unemployment and instead of contacting their lenders to try to get their affairs under control they apply for more and more credit cards and pay one off with the other one.

Question: What was the most surprising thing to come from shadow shopping?

Not one company suggested the shadow shoppers get help from a free and independent financial counseling service.

In one case, a debt agreement company asked shadow shopper Elaine to completely submit her financial affairs; she was told once an agreement was made her pay would go into the company’s trust account and it would send her money to live on and pay her bills, debt repayments and fees. If the company sent her less money than she needed to live on, this would have been a very dangerous option.

Large fees: Some companies quoted a set-up fee only and didn’t provide information on ongoing fees, saying that these were included in the repayment amount. Quotes ranged from up to $2000 for Michelle’s $12,000 debt, and $6000 for Elaine’s $28,000 debt.

Question: Should Australians be concerned about the rising levels of personal debt?

Actually there is some good news. Currently Australians are reducing their reliance on debt in preparation for the tough times ahead, with a clear trend towards saving instead of spending.

Question: How can people avoid getting into trouble with debt in the first place?

• Make a budget.
• Consider options to reduce your living expenses, such as selling the second car, as well as ways to increase your income, such as asking any adult children who still live with you to contribute to household expenses.
• Research ways to cut back on expenses; talk to family and friends.
• Get ahead. Once you’ve freed up some cash, make extra repayments, which can slash thousands of dollars in interest off your mortgage and credit card(s).
• Check our ten easy ways to beat the GFC.

Question: To what extent do you think resources on Internet such as the latest Choice Report, personal finance blogs, even comparison websites will benefit Australians during the GFC?

Research and information is definitely of help. We mainly wanted to get the message out there that there are free government funded services for financial counseling which can provide confidential and independent help. Also we wanted to make consumers aware of their rights under the consumer credit code which allows you to make an application for a hardship variation of your loan in case of temporary financial difficulties.

You can get the full Debt Relief Report from Choice Magazine online.

How well prepared for the recession are you? Are you struggling with debt? Leave your comments below.

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