Getting and Spending

GO Master Card

Dear Mr Hiram P Caton

Want a smarter way to upgrade your lifestyle? The smartest thing about your GO Mastercard is that it helps you choose the lifestyle you want, today. And to give you even more choice, we’d like to offer you a credit limit increase. By paying off your interest free purchase before the promotional period ends, you won’t pay a cent of interest. Pretty Smart! But your GO Mastercard is great for everyday Mastercard purchases, too. By repaying more than the minimum monthly payment, you’ll minimize interest charges. Very smart!

This letter is one among the millions that frequently reach Australians, tempting them to ‘upgrade their lifestyle’. And who doesn’t want to upgrade? That holiday in Bali; a flashy new SUV; paying the kids’ school fees; a Nokia moblie phone with all the trimmings. Consumers want, want, want, and spend, spend, spend. It’s our lifestyle.

I hold a Go card because it gives me interest free use of $4000. for three years. Assume an interest rate of 10%; that’s a value of $1200. Pretty smart, because I’ll liquidate the debt when the free ride terminates. But hang on a minute; how can GO operate on this loser basis; it’s not smart; it’s dumb. Well, maybe not so dumb if their clients use it for everyday purchases. What’s the interest rate? GO don’t say, but they do say that the interest on $9000. of credit is only $270. per month. That converts to $3240. per year. Interest rate? 36%. Very smart for Go; not so smart for me and you.

There are now 11.2 million credit cards in Australia, an increase of 6% over last year. Total credit card debt is $39.6 billion–a tenfold increase since 1998. The average debt per person is $2450. The interest rates? The major banks are charging 16-17%, plus fees, especially late payment fees.

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Despite the growth of assets and high employment, payment defaults increased 35% in 2007. One popular way of dealing with this predicament is to refinance the home under a new mortgage. About 33% of new mortgages fall into that category. A survey found that 75% of borrowers are concerned about their ability to meet payments over the next twelve months. About 12% of disposal income is devoted to debt repayments. http://www.vedaadvantage.com/latest_news/australias-debt-divide-deepens.aspx

The debt relief business is booming thanks to our bad habits. Here’s what one provider advises clients:

*Spend less than you earn

*Don’t take on dubious or expensive forms of credit unnecessarily

*Don’t make any late payments

*Watch your money carefully