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Credit card crisis

Discussion in 'Finance & Banking' started by lisa1234, 17th Mar, 2008.

  1. lisa1234

    lisa1234 Member

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    I have been reading your forum entry 'Attitiude to Debt and Budgeting...'. Presently my husband has contacted our broker about refinancing our home loan due to a credit card blowout. He was in the process of changing jobs, and as he is in the Health Field the mandatory checks that are needed are delayed (now 2 months). With this I changed jobs, and are working but he isn't.
    We have 3 credit cards that are draining our finances. My husbands car broke down 2 weeks ago and we are waiting for the mechanic to tell us if it needs replacing or can be repaired. He hasn't been able to do casual work as the other car is needed for my work and transporting the kids to school. No transport for my husband therefore he is unable to work.
    Is there another way to get rid of these credit cards? We used them to meet an unforseen crisis, and our debts now total $17000, thinking that the income would continue and we could get on top of them. Hence the broker who will be here on Wednesday. My husband hasn't had an income for 2 months. The mortgage payments are up to date.
    To break it down, $7000 on Visa, $2000 on Mastercard and $8500 on 'store card' (@ 26% I think).The latter is causing us to miss payments on the phone etc. I rang one of the consolidation loan companies that was on TV and they suggested that we refinance our home loan at 10% to pay the cards. How can we fix this so we can get rid of this credit card debt? Once my husband resumes work, our income will be fine again to meet the payments on the cards, but we seem not to be able to pay them off. Thanx Lisa:confused:
     
  2. TryHard

    TryHard Well-Known Member

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    Hi Lisa

    Sorry to hear credit cards are a drag. Avoid the debt consolidators if their idea of 'help' is a 10% pa. refinance :(

    Do you have some equity in your home ? If so you might be able to get a Line of Credit on variable for $20K and wipe out all the cards and leave a small buffer left over till the job situation sorts itself out. Keep paying the maximum you've been paying and you should wipe it out a lot quicker, given it'll be around 8% instead of 12-26% interest. Depends whether you are comfortable on further interest rate rises etc, but any LOC cannot possibly get worse than credit cards, you'd hope :) An exprienced broker will point you in the direction of the best deal.

    Cheers
    Carl
     
  3. crc_error

    crc_error The Rule of 72

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    how about rolling the credit cards over to one of those 0% for 6 months credit card deals?
     
  4. crc_error

    crc_error The Rule of 72

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  5. TryHard

    TryHard Well-Known Member

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    that's a good point - I keep getting BankWest (I think) offering visa at some zero rate for 6 months and another honeymoon discount for a further 6 months.

    Just be sure to read the fine print if you won't pay the whole amount off by the end of 6-12 months to be sure you can afford the 'real' interest rate, because that will still be higher than a LOC.
     
  6. Billv

    Billv Getting there

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    Lisa,

    do you want to tell us a little more about your home loan size and estimated value of your home?
    Depending on the size of your home loan, refinancing would probably mean that you both need to be working but there could be a way around that one.
    To refinance (depending on the type of loan) you should aim for an interest rate of 8.75% or less.
    Also watch out for the HUGE exit fees of some small lenders.

    Cheers
     
  7. lisa1234

    lisa1234 Member

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    We have a shared mortgage of $288,000, over 25 years. Part fixed and part variable. My husband takes home about $1300 a week (casual registered nurse) and I about $600 per week plus Three gorgeous young children:p.. I'd say that the house is valued about $390,000.
     
  8. tailcat

    tailcat Well-Known Member

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    Lisa1234,

    If you are really sure that your employment situation will sort itself out in the very near future, you may be able to sneak this one under the radar.

    Westpac allow me to extend a mortgage by up to $25k without doing a refinance, a valuation or checking my financials. A $20k extension usually goes through with out even the bat of an eyelid. Your bank may do the same.

    Tailcat
     
  9. lisa1234

    lisa1234 Member

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    I know it will sort itself out in the near future. The income was servicing everything well. The work transition will resolve itself...thats a given, but we did make a fundamental mistake using the 'store card' to keeps us afloat.
     
  10. Billv

    Billv Getting there

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    Lisa, and who is your lender?
    Have you had this loan long?
    Cheers
     
  11. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi Lisa

    Sorry to hear things are a bit tight at the moment, but from the above it sounds like it's a case of "lesson learnt"

    If you haven't seen it already can I recommend Sim's excellent article on saving. Section 3 onwards deals with debt reduction.

    http://www.invested.com.au/81/how-save-effectively-4170/?garpg=1

    Also, Simon (yep another one!) has an excellent post on Taming the Debt Monster

    http://www.invested.com.au/80/attitiude-debt-budgeting-745/

    ...which I suggest you read again...
    Best of luck with it. I don't think I can add anything other than to say - be very careful of just swapping expensive debt (i.e. store cards and credit cards) for cheaper (i.e. homeloan) debt. You need to address the fundamental issues that got you where you are...but it seems you understand that.

    Cheers
    N
     
  12. lisa1234

    lisa1234 Member

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    Bill, my lender is Homeside and this mortgage with them about 2-3 years
     
  13. Billv

    Billv Getting there

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    Lisa,

    I am not familiar with the homeside loans but since you haven't been long with them there will be exit fees. You should call them up and find out how much it will cost to exit.
    As tailcat said it would be best to first talk to your lender for an increase of the variable part of your loan.
    You might have to pay for the revaluation and some small amount for mortgage stamp duty if applicable.
    Because your loan is over $250K you should be able to get the 0.7% discount off their standard variable rate.
    Considering that you will probably pay a valuation fee I would shop around for a better interest rate but your husband has to do something about his employment or you may have difficulties refinancing.
    What portion of your loan is fixed?

    Cheers
     
  14. lisa1234

    lisa1234 Member

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    Fixed is $200,0000, rest variable.
     
  15. Billv

    Billv Getting there

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    Ok, I would try to get them to increase the variable loan
    If they question it you can tell them that you plan to do kitchen + bathroom renovations or something like that.
    Good luck.
     
  16. lisa1234

    lisa1234 Member

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    So is it best to say that rather than for consolidation?
     
  17. Billv

    Billv Getting there

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    I don't know what their rules are.
    You can call their helpdesk and ask the question without telling them who you are because debt consolidation is not necessarily every lender's cup of tea.
    I know a case where a guy had to tell his lender he wanted the money to buy shares and they were very strict, they went to the extend to issue the cheque to his fund manager...:eek:
     
  18. crc_error

    crc_error The Rule of 72

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    and then they may ask for quotes? nothing wrong with saying your consolidating your debts.
     
  19. lisa1234

    lisa1234 Member

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    When this broker comes tomorrow I'll pose the question about a renovation, and as an aside I'll say I want to consolidate debts perhaps.
     
  20. Billv

    Billv Getting there

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    Lisa,

    Ok, but be careful not to sign up with a dodgy lender and/or for an interest rate higher than what you currently have.
    Homeside have the backing up of NAB
    Also, most of your mortgage is fixed and I am guessing that it was fixed sometime ago so the interest rate would be in your favour.
    Also, you've only been with Homesite for 2-3 years so I am guessing that if you leave them you will be required to pay exit fees.
    Anyway, do the sums and see if it's in your interest to change.

    Cheers