Are you suffering from DEBT LAG?

Aussies are a nation of international travellers. In fact, during 2016 a record breaking 10 million residents left Australia to travel overseas on a short term basis. That’s 41 out of every 100 of us!

We often hear people say “no matter where you travel overseas you’ll run into an Australian”. You can see why!

Of course, the travel bug comes at a cost. Unless you have unlimited funds the more you plan, budget, save and pay towards your trip BEFORE you travel the better off you will be AFTER your holiday.

Nobody wants their dream trip to become a travel debt nightmare. Jet lag we expect – but ‘debt’ lag should be avoided at all costs!

The potential cost of debt lag

A 2016 travel report claimed Gen Y is the biggest spending generation with a holiday spend of $11 billion pa.

Gen Y is also our new generation of property buyers so it could come as quite a shock to some if their last overseas holiday continues to impact their future financial plans long after their plane lands!

All lenders assess your debt, repayment history and credit report during the home loan application process. A large travel balance could impact both your credit score and ultimately your ability to be approved for a home loan.

If you are a current homeowner you don’t want to find yourself drowning in holiday debt or experiencing an unexpected shift in interest rates that leaves you struggling to meet your repayments.

How do you AVOID debt lag?

Here are our top tips:

• Planning is the key. Create a holiday savings plan well ahead of your travel date. Look for early bird discounts.
• Avoid peak season. Travelling during the off-peak season may deliver extra savings.
• Research exchange rates. If rates are favourable against the $AUD then load currencies on a travel card BEFORE you leave.
• Consider ALL possible costs. It’s often the expenses you did NOT anticipate that sink your budget.

Managing debt lag

How can you pay off debt sooner? For one possible option check out Liz and David’s story…

There are a number of ways to manage credit card debt. Paying minimum repayments over a number of years is certainly not one of them.

Contact us for a chat and we can help explore a debt management solution for your individual circumstances.

Whether you are an existing property owner or a potential FUTURE property owner, managing credit card debt will help protect your financial future.

Disneyland almost broke the bank!

Liz and David always dreamed of taking the kids to Disneyland so when their eldest son started Year 6 they decided it was time to bite the bullet and go!

They HAD planned to get on top of their mortgage and then save for a trip. They reviewed their budget and decided if they cut some expenses they could pay for the trip with their credit card and manage the repayments. They estimated the trip would cost $8,000-$9,000.

The first setback was when their hot water heater blew up a week before they left! THAT was an expense they had not planned for. After arriving at Disneyland it soon became clear their 3 day pass wasn’t long enough so they added extra days. Transport was another cost that caught them unprepared.

Liz was also blown away by the cost of food at Disneyland… AND the shopping! Who knew you could buy the kids their annual clothing allowance in America SO MUCH cheaper than Australia? They arrived home from their trip of a lifetime with a $12,186 credit card balance!

Liz and David knew they had to rethink their plan. They chatted to their broker and consolidated their debt into their home loan to take advantage of the lower rate. Then they added their planned repayments (plus any extra they could afford) onto their mortgage to clear the debt as quickly as possible.

Need help with debt? Ask us for our article

‘Debt got you down? Take action NOW!’

Changes to credit reporting…What you need to know!

Does it seem like the finance world is dominating the news at the moment? Between the ongoing Royal Commission and the recent federal budget we wouldn’t really blame you if you were starting to ‘switch off’ to finance news.

Is there a problem with ‘switching off’? Well possibly – especially if changes in the finance world that could affect YOU end up slipping under the radar!

So what upcoming changes do you NEED to know about?

It’s probably fair to say that EVERYBODY should know about changes to credit reporting. Why?Because credit reporting could affect EVERYBODY!

And yes, changes are coming… 

From 1 July 2018 mandatory comprehensive credit reporting (CCR) comes into effect with the big 4 banks required to participate fully in the credit reporting system.

The mandatory credit reporting will give lenders access to a deeper, richer set of data enabling them to better assess a borrower’s true credit position and their ability to repay a loan.

What is CCR?

CCR was introduced in 2014 – at that time Australia shifted from a negative reporting system to a positive reporting system. However, up until now it has not been mandatory for lenders to adhere to the CCR guidelines. That has NOW changed for the big 4 banks.

What is the difference between the two systems?

Negative reporting system – recorded negative events in your credit history such as overdue debts, defaults, bankruptcy etc. Lenders based their assessment of your borrowing potential solely on this information. They could also access information on credit applications you have made but were unable to see whether those were approved or not.

Positive reporting system – this regime makes it easier for lenders to conduct a comprehensive and balanced assessment of your credit history. It now contains information on your repayment history for credit cards, home loans and personal loans including:
• whether you have made a payment or the
minimum payment required
• whether the payment was made on time

It also contains information on your consumer credit liability including:
• type of credit account opened
• when it was opened and closed
• the name of the credit provider, and
• the current limit on the credit account

Your repayment history is stored on your credit file for up to two years.

Why was CCR introduced?

CCR has brought our reporting system in line with many other Organisation for Economic Co operation and Development (OECD) countries. Under CCR it is now easier for lenders to conduct a comprehensive and balanced assessment of a borrower applicant’s credit history. The positive? If you have a good credit rating it could potentially allow you to negotiate a better deal on your mortgage, personal loan or business loan. The negative? If you have a poor credit rating you could find that obtaining credit becomes more difficult and/or expensive. On the other hand, it may also be easier to show you have recovered and stabilised your financial situation after a negative event such as a default.

Not with the big 4 banks?

It is expected most other lenders not currently adhering to CCR will follow suit – before they are required to do so! The government is also considering extending this mandatory reporting to gas, electricity and phone service providers. In short, at some point in the future ALL of your financial habits – both good AND bad – will be an open book to potential providers of finance and financial services.

The bottom line? There has never been a more important reason to pay attention to:
• your bill paying habits
• your credit card usage, and
• staying on top of debt…

It COULD make a world of difference to your future ability to be approved for finance.

Need some help to make sure your credit report is in tip top shape? Contact us for a chat about debt consolidation. It may not be suitable for your situation but could be worth exploring.

If it’s time to get on top of debt contact us for a copy of our debt consolidation spreadsheet and we’ll explain how it works.

Investment property checklist

We are all told that purchasing your home is the biggest financial decision you will ever make. Well that may be the case for most Australians. However for those 20% of us who invest, or those who are considering investing in property for the first time, it really is the NEXT biggest financial decision to make.

Investment considerations at any time are both exciting and scary. So to ensure you are on the right path a successful property investment experience, please use our checklist to avoid making any major mistakes along the way.

  • Take a look at a map of the region you are
    considering, identify the local CBD and draw
    a circle 15 kms around the central point. Start
    looking for your property within the circle.
  • Research, research, research! Review data
    showing median sale prices and rental yields on
    comparable properties.
  • To ensure affordability stay within the second
    and third quartile of prices in the suburb for
    price and rent.
  • Is the property within close proximity to
    schools, shopping centres, university or
    business hubs that are well established and
    likely to appeal to good quality tenants?
  • Does the area have an established public
    transport network and is it close to the main
    arterial road network?
  • Check the local government website for
    developments planned for the suburb/region,
    eg high density dwellings.
  • What is the land size? Is there potential for
    subdivision (or to increase the size of the
    existing dwelling) at a later stage to increase the
    marketability?
  • The newer the property the better the
    depreciation benefits.
  • If an older property, does it lend itself to a cheap
    make over?
  • Unit – best features: minimum two bedrooms,
    built in robes, bathroom + ensuite, internal
    laundry and lockup garage.
  • House – best features: minimum three
    bedrooms, built in robes, two bathrooms,
    lockup garage (parking for two), extra storage,
    low maintenance fully fenced yard.
  • Is there a current tenant and if so are they
    paying market rent?
  • Invest time to find a quality property manager.

These strategies are great guidelines, however your number 1 action is to speak to your finance specialist to help you identify:

  1. How much you can borrow for your investment property
  2. How you will fund your deposit
  3. How your finances will be structured for your longer term future
  4. Your long, medium or short term holding expectations
  5. The costs involved in holding property
  6. The tax advantages of investment property
  7. The pros and cons of positive and negative gearing and what may suit your circumstances best
  8. Recommended insurances to minimise risk (speak with our financial planning expert if you don’t already have one)
  9. Your exit strategy

THEN

We recommend you have LOAN PRE-APPROVAL
in place before you go shopping.

(“Ultimately we’re seeing that Australians still hold faith in the long term investment benefits of property. Property is a great opportunity to build wealth, but it definitely pays to do your research, take your time, speak to the experts such as a mortgage broker or buyers’ agent, and focus on the financials of the investment rather than the emotions of a purchase.”)

Mark Woolnough, head of third party distribution, for ING Direct 2016