Published on June 22, 2017 4:41 am, by Jen Bakker
Financial hardship is a familiar concept in recent times. The cost of living continues to grow, while wages don’t. Credit is a way for people to keep up with their bills and lifestyle, however, can often lead to further financial stress.
The average credit card balance currently sits at $4,730 with Australians jointly holding 16.7 million credit cards with a total debt of $52 billion.
Pulling yourself out of debt is challenging and admirable. Credit card debt has traditionally been easy to get into and difficult to get out of. Credit card companies are often very helpful with limit increases and approving credit cards, but not so helpful with simple interest calculations and ease of reducing limits and closing cards.
Today Federal Treasurer Scott Morrison announced 4 changes to help address these things –
#1 Credit Card affordability assessments will be done on a customer’s ability to repay the full credit limit within a reasonable period
Currently, credit card issuers can assess customers on their ability to pay the minimum repayment amount.
This can (and has) led to customers incurring debts that cannot be repaid in a timeframe that allows them to escape excessive interest charges.
#2 Unsolicited offers of credit limit increases will be prohibited
From 2011 card issuers were banned from making unsolicited offers in writing to increase credit limits for consumers unless the client had given prior consent.
Today the ban has been extended to all forms of communication. This measure has been taken to protect people who cannot afford it.
This is a good thing; it can be so easy to say yes to a credit card increase when you know that you have bills to pay!
#3 Interest calculations will be simplified
Interest charges are technical and complicated and very few people understand exactly how they apply. This can lead to consumers incurring heavy interest charges after any interest-free period when they don’t pay their balance in full.
Most credit card issuers charge interest on the full balance from the date of purchases unless the credit card is paid off in full. This applies even when there was a partial payment.
The changes being made are simpler and will allow interest to be charged at the end of the statement period on the balance outstanding.
#4 It will be easier to cancel your card or reduce your credit limit online
It has been a challenge to cancel your credit card or reduce your limit, with many providers requiring you to go through a variety of channels to cancel your card. Mostly it’s numerous phone calls or a visit to your local branch.
Credit card providers will now be required to give customers the option to request a card cancellation or limit reduction electronically.
Why this is good news
Credit cards are easy to use! Having a limit that fits your personal income and circumstances should help people spend within their repayment means.
Choosing to repay debt, reduce and cancel your limits is empowering. The current complexity of closing cards results in people leaving open cards they prefer not to use.
Keeping them can lead to decisions to spend that they may have been better off not making.
Similarly, with credit limit increase offers, it’s too easy to say yes!
And finally, how good will it be to be able to easily understand your interest calculations? It remains to be seen how this will change the presentation and amounts on our statements, but we’re looking forward to checking it out!
Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.