Household Debt

[Tiger74]

Okay, just chilling with a nice glass of single malt after being in the garden all day and losing my cash on the Purple Bugger. Listening to 3AW, and just had to say one thing on this debt/interest rate debate:

If you borrow to your limit and default.....so be it

I realize this is majorly harsh for some people, but if you borrow 100-110% for your mortgage, or have a house filled with Harvey Norman 2 years interest free plasmas and fridges, you are asking for trouble.

People are saying that the Govt (whoever has the gig in 3 weeks) should intervene and regulate the sale of these loans. Others are even saying interest rates should not go up because of the exposure of people to these loans. This makes no sense though.

People who sign up to this debt do so knowing they are borrowing against tomorrow because they want today. They could save and wait 6 months or 2 years, but no, we cannot wait these days. Granted the penalties and rates on the Harvey Norman type loans are ugly, but if you cannot manage to pay off the Plasma in 2 years, again you should have seen this problem coming.

On home loans, a very simple solution:

1) SAVE
2) LOWER YOUR STANDARDS

The current debt crisis has come about because we all want 6 bedrooms, media rooms, double garages, spas, etc. I am in my 30's (so I am not living back in the 60's), and we currently live in a unit because it was what we could afford whilst still being able to save (and absorb rate rises as they may come). We had the option of bigger places, but this meant living further away from the city than we wanted, so we lowered our expectations.

Too many people today expect to move into a house like their parents when they move out. This is just crazy UNLESS you have done the hard yards and saved up a big enough deposit to manage this financially.

I realize many in debt crisis are outside this rant (i.e. those with small business failure, personal injury or medical bills, family situations, divorce, etc), but to be honest I don't think people in this bracket make up the majority facing debt issues today.

Curious to hear if I am the only one thinking like this, or am I out of touch with most?

 

[Disco08]

Yeah agree with all that.

 

[baktiger]

Last mortgage I got, I insisted that the term of the loan etc was calculated on an interest rate 5% higher than
it was at the time. Bank man didn't like me for doing that... wanted me to be kinda close to the bleeding edge
of it all I think. But yeah, although interest rate rises concern me, I factored them in at a much higher rate than
they actually are... Oh, and never had a personal loan for anything. Because I pay the mortgage at such an
inflated rate, I can redraw as I please if I'm really keen on something, but usually I just save up for it and pay
cash. Don't even have a credit card.

 

[Freezer]

A good point T74. Your clarification about certain situations being unavoidable also rings true. But generally, "if you aint got it, don't spend it."

We also pay overs each month wakkybakkytiger. Helps in that if we ever do default for a month or two, we know we're well covered.

We should also have our 19 year mortgage paid off in about 9 years if we keep up those payments.

 

[jayfox]

Agree entirely T74. We live in an age of instant gratification which I call 'Generation Now' or 'Generation ME'. Everyone wants everything immediately without having to put in the hard yards to get it. That's why companies such as Harvey Norman and Radio Rentals are so big now, because so many people want their Plasma now instead of saving for it and if they default on their terms they get fleeced. Car and computer leasing agreements now mean that you have the latest machinery, which gets updated every 2 years, but you keep paying but never actually 'own' anything.
In the old days people would save for years to buy a new car and would work their whole lives to be able to afford the types of houses that young people today expect to be able to move into immediately. And when they finally could afford to buy that house or car they truly appreciated it and all of the hard work and saving that had got them there.
I know to young people reading this I will sound like a whiny old man who is out of touch, but I'm only in my early 30's.

 

[Mr Pumblechook]

I largely agree, T74. Many people don't think beyond instant gratification.

However many lenders are unscrupulous, particularly preying on those at the lower [lowest] end of the property market. There is a shortage of affordable rental properties, long waiting lists for public housing, and until recently many lenders out there were virtually begging people to take loans. Very enticing if you are constantly looking for somewhere to live.

When we got out loan - through a broker - virtually nothing was discussed about our ability to pay it back. We were 'encouraged' to get a loan with more bells and whistles than we did, which would have made payments even tougher. I can imagine how someone could enter into a loan arrangement that would see them in trouble once, for example, the honeymoon period ends, combined with interest rate rises, and/or combined with the arrival of a child, and/or combined with a lost job.

Four Corners did a show recently on the collapse of the sub-prime mortgage market the States, and highlighted the huge numbers of people affected - primarily the poor.

 

[Tigers of Old]

On home loans, a very simple solution:

1) SAVE
2) LOWER YOUR STANDARDS

Good post 74.

 

[Tigers of Old]

Also although this seems incredibly basic, credit cards really are only for people who can afford to pay it off every month.

If you can't do that then you shouldn't have a credit card.

I had a mate who went with a group of us on an overseas holiday 15 years ago and borrowed the money through the bank because he couldn't afford it. The reality is he just shouldn't of come.

The trip must have cost us about 5-7k including expenses.

Two years ago after almost 13 years of debt he finally paid off the bank.
I dread to think how much he payed in interest.
Crazy stuff.

 

[Disco08]

I've used a credit card purely for paying bills or buying more expensive things that I have the cash for and pay off straight away for about 10 years and have had 8 completely free domestic business class flights in that time. Never once paid a cent in interest.

 

[Tigers of Old]

I've used a credit card purely for paying bills or buying more expensive things that I have the cash for and pay off straight away for about 10 years and have had 8 completely free domestic business class flights in that time. Never once paid a cent in interest.

Just as it should be Disco.

There's obviously plenty who don't do it that way though.

 

[jb03]

Also although this seems incredibly basic, credit cards really are only for people who can afford to pay it off every month.

If you can't do that then you shouldn't have a credit card.

I had a mate who went with a group of us on an overseas holiday 15 years ago and borrowed the money through the bank because he couldn't afford it. The reality is he just shouldn't of come.

The trip must have cost us about 5-7k including expenses.

Two years ago after almost 13 years of debt he finally paid off the bank.
I dread to think how much he payed in interest.
Crazy stuff.

But he lived a great holiday and time that would otherwise have been denied him. Good on him I say.

 

[Harry]

A trip to the Crown should solve these problems.

 

[Tigers of Old]

But he lived a great holiday and time that would otherwise have been denied him. Good on him I say.

True enough james brown and that trip bonded several of us including him as life long friends.

That is priceless.

 

[jb03]

A trip to the Crown should solve these problems.

Tried that many a time. Doesn't quite work.

True enough james brown and that trip bonded several of us including him as life long friends.

That is priceless.

Too true.

 

[ssstone]

top post and well put t 74.as a subbie i can tell you about folk that have built 40 square plus "mc mansions" then harveyed themselves up to the eyeballs and wonder why their marriage fails.my mum taught me the smartest thing..."if you cant pay cash,..you dont need it" never had a credit card and never will,and about to finalise most blokes wet dream and buy a 60 square BARfridge....

 

[Disco08]

No wonder Stoney, tradesmen are the new white collar class aren't they?

 

[ssstone]

No wonder Stoney, tradesmen are the new white collar class aren't they?

disco.. my ute is 34 years old,my wifes car 17 years old ,my third car (for carting the kids around) is 16..paid above and weekly on my mortage,dont have a plasma,and my house which houses 5 of us is just under 20 squares.just simple economics really...remember disco if i take a week off to go away ,i also have to factor in whilist im spending more than i usally do i aint earning anything.and tell me disco who else<apart from tradies have to pay tax on a projected earnings before they have earned it?

 

[Disco08]

It wasn't meant as a dig at you. All the tradies I know are making a killing at the moment.

tell me disco who else<apart from tradies have to pay tax on a projected earnings before they have earned it?

Small business owners? Either way you only pay the tax once don't you?

 

[ssstone]

It wasn't meant as a dig at you. All the tradies I know are making a killing at the moment.

Small business owners? Either way you only pay the tax once don't you?

disco try come up with xxxx amount when youve had a slow month /paid workcover/your own insurance and feed a family ...and the job you have is held up by no fault of your own,but you booked/organised it on the promise and put other jobs back.and after that try and get paid..ask any subbie bout that,.it is a tough gig that has its own rewards,but dont believe what you read in the papers,its only union building contractors that clean up .

 

[Disco08]

I never read the papers. I'm good mates with at least 6 painters, 2 plumbers, 2 electricians and 1 bricky (that I can think of) who are all subbies and are all pretty happy with the way things are going for them right now. Most of them make yearly in the pocket wages considerably more than another good mate of mine who is a consultant at executive level to government departments and also does pretty well for himself.