Credit Card Help
Banks are under increasing pressure to provide credit card help, given the current financial climate. In Australia, all consumer finance providers (not for business purposes) are signatories to the Uniform Consumer Credit Code (CCC). This is state legislation based on common principles. Under the CCC, lenders need to provide “hardship provisions” or credit card help. Credit card help can consist of a variety of factors, is not defined in the legislation and is up to the credit provider to determine what is “reasonable”. Credit card help factors include: freezing interest, freezing payments, or a combination of both. However, credit card help is a short term solution, lasting generally for three months and at the longest, six months. If your situation relates to a short-term problem, then this may be perfect, but if your problem is more long-term in nature you should look at other credit card help options.
Background on Credit Cards
Credit cards are the most profitable products for banks and other finance companies. The first credit cards were released by specific companies, mainly petrol companies to traveling clients. The first card that you could use at multiple locations was developed by Frank McNamara, the founder of “Diners Club” in 1950, with the idea of consolidating multiple cards to one holder. Bank of America credited the Americard in 1958, which became the Visa network. With thousands of banks in America, credit cards quickly became the easiest way to spend money, as you might not have access to your bank (no ATMs). This fueled the rapid adoption of the credit card in America. The first credit cards were “charge cards”, and the whole balance had to be paid off every month. What we think of as a “credit card” is actually a “revolving line of credit” combined with a “charge card”, which allows a customer to only pay the interest (minimum payment) instead of the whole balance. This method over the long term is often a lot more profitable for lenders.
By the 1980s, it had quickly become apparent that credit cards were the most profitable business to be in. Companies like GE, which had been a manufacturer, entered the credit card market. The competitive market led to credit cards being advertised just like any other consumable, through TV advertisements, junk mail and pre-approved credit card offers. Credit card adoption is now almost universal. Today, there are four credit cards for every one person in America; while there is no equivalent data for Australia’s consumers, this data can be assumed to be similar.
Why is Credit Card Help so Important?
With aggressive marketing and the easy availability of credit cards, Australia’s credit card debt in 2008 stood at $43 billion. The minimum payment on these cards would be $860 million per month, or $10.3 billion per year. The minimum payment on Australia’s credit card debt accounts for 1% of GDP (the entire earnings of every Australian added together).
- Australia’s annual minimum credit card payment in 2008: $10.3 billion
- Australia’s total military expenditure in 2008: $26.4 billion
Currently, Australia has an average of $2000 in credit card debt per person. This scale of credit card debt means that Australians are particularly susceptible to credit card stress should their income reduce, such as happens in a financial crisis. Credit card debt tends to not be evenly distributed through the community, with those who are least able to afford debt being forced to use it for unexpected expenses. There is a large amount of political pressure currently on credit card companies to assist their clients when they fall into financial difficulties. Unified national consumer legislation is about to be introduced, ensuring that voluntary hardship consideration is mandatory.
Specific Government Credit Card Help
In 1996, the Commonwealth Government introduced legislation specifically addressing unsecured debts (mainly credit card debts). This option has become increasingly important due to rising rates of insolvency. Insolvency refers to not being able to afford current financial commitments, which has increased due to a variety of factors: banks increasing credit limits without exploring affordability, dramatic increases in the cost of living, and reductions in employment or overtime. Many people who where previously able to afford their debts are finding themselves insolvent. Credit card help through debt agreements allows interest to be frozen and whatever proportion of the debt that is unaffordable to be written off.
The Benefits of Credit Card Help
Credit card help through debt agreements works in the the best interest of both the creditor and the client. These agreements allow clients to repay what they can afford and allow creditors to minimise their loses.