ASIC (Australian Securities and Investments Commission) has introduced new rules that come into effect on 1 January 2019 that will make it harder for us to land in credit card debt. Higher limits and zero-interest balance transfers are in the regulator's crosshairs as it tries to protect people from getting themselves into never-ending credit card debt cycle.
Credit card providers have been reaping the whirlwind as past rules didn't do a lot to protect us from getting into debt. ASIC's data shows that there were over 21 million credit card accounts in Austrlaia in the middle of 2017 with outstanding balances of $45B. Almost $32B of that debt was being charged interstate's and there were $1.5B of fees charged on those accounts.
Under the new rules, if you apply for a credit card, you'll need to prove to the lender that you could pay the entire balance of the card off within three years. Existing cards won't be affected but if you apply for a limit increase - something many lenders used to actively encourage - then you might not get what you were expecting.
In the past, lenders based the calculation of credit limits on the borrowers being able to pay 3% of the card balance each month. But the new rules aren't about making a payment that will keep the debt collectors at bay - it's about ensuring the entire card balance can be cleared.
ASIC found through recent inquiry that about one in six consumers struggle with credit card debt. They found 550,000 people are in arrears with an additional 930,000 with persistent debt and 435,000 people repeatedly repaying small amounts.
Christmas is one of those times when many of us overspend on our cards as our goodwill exceeds our bank balance. And some people justify this by loading up their current cards with the expectation that they'll be able to shift the debt to a zero-interest balance transfer later.
That's going to get a lot harder in a few weeks.