Can We Talk About Debt? (I’ve got good news)

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Hi there and welcome to our Ask Dominique for the month of June. Today, I want to talk about a subject that’s a little bit taboo and that is debt. Now, when I say debt, a lot of people go, “Oh, that’s not me. I’m not really in debt in the sense that I’m not really struggling with phone calls from debt collectors, and I’m not having sleepless nights.” But the fact is that a lot of us carry a lot of debt that we don’t need to. Yeah, sure, we can afford it, but can we get ahead carrying that monkey on our back? I call it a debt anchor.

Kevin and I, my husband and I once had a credit card that was maxed out at its $30,000 limit. But we carried that for over eight years and we were paying over $800 a month just in the interest repayments. And we could never ever get the 30,000 to pay it down. And if we did chip away at it for a bit and we get it down to 20,000, then we’d go on a holiday or whatever, if it’s there, it’s tempting. And it always hovered around that $30,000 mark.

We were the dream clients of the credit card companies. That’s what they want. They want people to carry that high interest debt. Responsible people who aren’t in financial pain, but what it ends up doing is it holds you back because we paid that $30,000 off many times over, over eight years at $800 a month. And we could just never cut it off completely. We just didn’t have a strategy or a plan. And as you know, at DGI, we have a debt management solution now.

And for those of you who may have seen me on A Current Affair, there’s a clip there where on live television I reduced a guy’s monthly repayments, so debt repayments. He had a $20,000 shortfall. So he was circling the drain. And every month he was having to come up with $20,000 that he didn’t have. That was the gap in what money came in and what money had to go out. And we would reduce that down to $642 a month. So we only had to try and find 642 from $20,000. And people have said to me over the years, “How do you do this? How can I do this? What are the secrets?”

It actually took me a long time to figure it out myself. So if you’ve heard my debt story, I actually got a magnifying glass and held it over the law of debt to try and find all the loopholes and navigate my way through. And I did that for myself and got out of millions of millions of dollars of debt. And I did it for that guy on A Current Affair and got him debt at a manageable level of $640 per month.

So what I want to share with you today is how I did that and how potentially we can remove your debt anchor, because now is the right time. I say that for a few reasons. With our debt management clients, lenders are really negotiable right now. So post-Royal Commission, they’re cleaning up all of their dirty laundry, they’re finalizing things. And that means massive discounts. Not just for people who are under the pump and in hardship. But for anyone who’s carrying that debt anchor, that’s holding them back from getting to the next level. You just need to clean up that debt, streamline it once and for all so that you can launch.

So that’s what I want to share with you. I want to pre-frame this though by saying debt is not a bad thing. We all know there’s good debt and bad debt, and sometimes the line gets blurred. So we use debt for leverage to get ahead. I once paid for part of a property with a credit card, but that was good debt. Because I knew the profit of what I was going to make on that property would outweigh all the interest repayments and any of the debt. I factored all of that in. As long as the profit is greater than the amount you’re losing by using someone else’s money, that’s fine.

Sometimes though through no fault of our own mistiming a market or external events, the profit that we calculated isn’t there and we lose money or the debt just creeps up on us. And I don’t know why we don’t talk about it. It seems to be that you’re just branded as a massive failure. That’s how I felt when I had that debt. No one would talk about it. I felt everyone else was far further ahead than me, more successful than me. All my peers were doing better and I was ashamed. Yet, bad things happen to good people all the time. We don’t live in a just world and people celebrate things like, “I beat cancer. I beat my addiction.” And yet we don’t talk about “I beat debt.”

So I want to talk about beating debt because it is very, very common. In fact, the Australian Bureau of Statistics published information says that 30% of people are over-indebted. So that’s not just a debt anchor, having a credit card, not being commercial about it and making the minimum payments every month, but just carrying that burden so you can’t get ahead. These are people who are actually robbing Peter to pay Paul and they’re on the hop a little bit.

So that’s 29%, nearly 30%, nearly a third of households in Australia are classed as over-indebted. And then a further, if you take that 30% and round it up to 77%, 77% in total, just carrying too much debt. It’s such a problem in our economy that the Reserve Bank has started reducing interest rates. Debt growth in the last 15 or so years has increased exponentially. So it’s gone from 21% to 29% of growth. So in other words, 21% of people were over-indebted in 2004 and now 29%, nearly a third of us are over-indebted.

And we can see from this graph here, it’s translating into mortgage stress. So we can see this yellow line, mortgage stress, people defaulting on their mortgages is off the charts over 31% of people. And this gray line here is the amount that we spent. So when we spend nearly 200% of what we earn for every dollar we earn, we spend two. And that shortfall is made up from debt. And the reason for that is this green line here is wages growth.

So since the year 2000, we’ve gone nowhere, we’re not earning anymore, but we’re spending a whole lot more on properties, prices have gone up in certain respects and money has been easier to come by. And people have got very, very comfortable with debt. It’s very normal that we have mortgages that we borrow money, that we go on holidays with credit cards. We have no threshold or pain barrier for debt. Probably 50 years ago, our parents and our grandparents would have had sleepless nights carrying the amount of debt we have, but that’s all been watered down now.

And what it means for us economically is we have no savings. So this yellow line here is household savings below zero there. The blue line there is our household, the amount that we as household have to dispose. So disposable income means the amount that you have left over after you’ve paid everybody, the amount you have leftover for yourself each month. And again, negative there. The orange line here is knock backs for refinances of loan. So you can see when the Royal Commission hit that orange line went off the chart.

Debt is never a problem when you can get more debt. So it’s easy to rob Peter to pay Paul and just keep dancing along. Unfortunately, there’s going to be a day of reckoning. And now is the time that banks are getting their loan books in order. Lenders are being negotiable. They want to close off accounts, and it means a window of opportunity to get that debt monkey off your back.

So the type of person who’s most likely to be over-indebted, statistically according to the Australian Bureau of Statistics, anyone between 25 and 44 years of age, nearly 50% of those over-indebted are going to be homeowners because of property price rises. And the ability pre-royal banking commission to get a mortgage and to get debt, they were lending irresponsibly. So that makes up the lion’s share of the debt.

However, higher income households. So people earning more are more likely to be over-indebted. So they look at it, the Australian Bureau of Statistics breaks it up into 20%. So you have the top 20% of the population are the highest earners and then it goes downwards from there. So the bottom 20%, only one in six or 16% of them are over-indebted. The problem isn’t in struggle street. The problem is up here. 25% of the top 20% of people, the highest earners in the economy, 25% of them are carrying too much debt.

So they’re borrowed too much. They’re never going to get out of that if they don’t actively excise that debt and deal with it. Most people just think, “Oh well, we don’t talk about that. I’ll just carry it. Something will happen. Something will give” and nothing ever changes. That’s where I was and you don’t need to be there. Sydney and Melbourne are the highest levels of debt and the highest amount of people per capita who are over-indebted.

So 407,000 people over-indebted in Melbourne and 419,000 in Sydney. And the average home loans for over-indebted people are four times the size of home loans held by those who aren’t over-indebted. So their problem is the debt that they’re carrying is four times greater than what’s perceived to be a normal and manageable level of debt.

So 77% of households lack sufficient liquid assets to get them out of trouble should something go wrong. So the Australian Bureau of Statistics measures liquid assets as cash in the bank, shares, things that you could easily access. Superannuation if you’re of the right age. If you hit a bumpy spot in the road, how could you get out of it without going under? 77% of people do not have the liquidity to get out of trouble. They don’t have a war chest or a go-to solution. They’re just getting by hand to mouth. And that becomes a problem.

If we project this indebtedness forward by 2020, we’ll be spending 220% of what we earn. And on a world scale we’re up there. We’re the fourth most indebted country in the world in the private sector after Denmark, Netherlands, Norway then comes Australia. I don’t tell you this to say, “Shame on you. This is really bad.” I tell you this to say, “We should talk about this.” This is very, very normal and everybody who’s walking around saying, “Oh, I don’t have a problem” is probably lying if not to you, then probably to themselves.

And I want to share this because there is a plethora, there’s so many solutions, a myriad of solutions out there. And that’s what I discovered from my own debt journey just going through the legislation, all the laws, all the loopholes, all of your rights when you’re in debt that we just don’t know. No one shares it because we don’t acknowledge we have debt. If we don’t ask, then we don’t find out and we don’t know what we don’t know. So we put our heads in the sand and bury it and say, “She’ll be right, mate.” Then we never learn what could be possible.

So no one talks about this, but this is the gold in the gutters that I’m going to share with you. So we have a national credit code in Australia. So Australia-wide laws to protect consumers when it comes to borrowings and debt. Now this is for debt incurred for a household or domestic purpose, mom and dad style debt. This is a debt to a company, for example, in running a business. So this is a very, very powerful law for all of our residential debt. If you borrowed for an investment property, that’s classed under the credit code. It covers most debt. It doesn’t cover business debt, but there are so many more laws.

So there’s a contracts review act that looks at unfair contracts. Now that’s only for New South Wales, but there’s similar jurisdiction around unjustness, unfairness, inequitable deals in other jurisdictions. There’s an industry code of practice. And there’s the ASIC Act that deals with things like unfair terms, misleading and deceptive conduct, unconscionable conduct, harassing people, coercing people. All the things that go on at the top end of town with the big guys when it comes to debt.

So there is a lot of legislation across all jurisdictions, Australia-wide that is there to protect you and that gives you huge rights when it comes to leverage to negotiate your debt. Debts can be paid out four cents on the dollar and you don’t have to be in struggle street to do that. I wish that before those eight years of paying $800 a month on a $30,000 credit card it had gone by, I wish I had have known this. I could have paid out that credit card for about two or $3,000. But anyway, I know now and you will too after this session together.

So first thing that we do and this is what I train all my debt counselors to do. So I’ve trained people with this knowledge of how to find the loopholes, how to assess a situation, what is the best way to crawl and navigate through that debt? First thing is, was the lender licensed? You’d be surprised at how many loan sharks or lenders are out there that don’t have the right licensing. That is instant writing off in circumstances of that loan, because they need to have an asset credit license to be able to lend it.

Now, if it’s your mom lending your money and it’s a one-off, that’s a bit different. But if it’s part of their course of business or they’ve done it more than once, it may be that that loan could be written off. When you’re given a credit guide, they have to under the national credit code, give you a specialized document called a credit guide at the time that they lend you money. And guess what? It’s really hard for them to disprove a negative. So for you to say, “I didn’t get one.” How are they going to prove that wrong?

This is all about getting a toe hold and getting leverage. Does the credit contract, what you signed, the loan contract comply with disclosure provisions? So have they told you everything that they need to? It’s quite onerous on them. So there are mandatory regulations under the National Consumer Credit Protection Act. So they have to have certain content in that. So there are regulations, acts of parliament, and it actually annexes what it’s got to look like, what they’ve got to give you. They have to have certain words in there, certain phrases. If they miss one, then it’s an angle to get some leverage to reduce that loan or get them to come to the bargaining table because they’re in trouble. They’re on the back foot.

It goes down to the font. So if the print is too small, if it’s not in certain italics or boldness, if they’ve missed that out, if they haven’t dotted that I or crossed that T they’re in trouble. And the actual layout, is it wide enough? Is it spaced enough? It’s right down to the line. Because in the old days they used to just put it all in the fine print and go, “Oh, it’s all there.” So the law has leveled the playing field now where they’re bound. Not only do they set it outright so that it’s clear, legible, understandable using the right words, putting the right data in there in the right font and with the right gaps and spacing between it.

Was there a broker or other middleman who put the loan together? That’s quite often the case. So often there’s a pot of money, perpetual trustees, but they’re not in the business of writing loans. So they’ll put a mortgage manager or a middleman in there, or maybe even a broker to write the loan. Those people still have to be licensed and they come to the same level of compliance and responsibility as a primary lender.

Did they give you a credit guide? Did they give you a quote as to what you were paying? What they were getting paid? There’s a lot of boxes they have to tick. And a lot of this came up at the Royal Commission, which gives you big leverage right now. Did they give you the required disclosures under all of that mandatory legislation? So they’re required to give you the credit guide. They’re required to set out in what they give you. What the loan is in writing. Specify the credit provider, that’s the lender. Their name, their contact details, and their credit license number.

They have to provide details of the internal dispute resolution scheme. So they have to be members of AFCA, the Australian Financial Complaints Authority. That has to be in the documentation. They have to say, “If you’ve got a problem with us, here’s where you go. Here’s what you do, and we’re a member of that.” And they have to inform the consumer. So it’s actually a massive onus on them against their own interests. They have to say, “We are obliged to make sure this loan is in your best interest. We cannot give you an unsuitable loan. And we have to make sure that you know all your rights and everything under how we’ve assessed this loan.”

What it means is and we’ve seen this many a time, people will go for a refinance and they’ll say, “My purpose here is to reduce my debt.” And the lender will say, “That’s okay. We’ll give you a line of credit for $800,000 and that gives you flexibility.” No it doesn’t. It actually gets you in more debt. So it’s not aligned to your purpose and why you’ve gone to see that finance broker. So they could be in trouble for that, gives you more leverage.

They may if they haven’t complied with any one of these loopholes, it means they have to compensate you for a loss that you’ve caused and they’re penalized. So big leverage there for you. And I’ll often negotiate these with you because they know that they’re on the back foot. They’ve got some blood on their hands there. What about using non-disclosure to your advantage then? So they have to give certain types of disclosure under the credit code. They have to tell you about the entity that’s giving you the loan and all of that’s in the credit guide.

They have to say who the broker is, how they fit in, any other intermediary. And because they’re so excited to lend money and because their only experience is people never question where the money’s coming from. They don’t understand. They very often don’t dot these I’s and cross these T’s. So these disclosures help you identify the terms of the loan contract. The credit law gives a list of things that they have to tell you that has to be in writing in that credit guide.

So there’s a checklist here. This is what I give to my debt counselors so we can go through and go tick, tick, tick, tick, tick. It’s just a sampling of these sort of things. Yes, it’s a mandatory requirement. Either of these, whether it’s under the code or it’s mandatory gives you a right of recovery, which makes them very negotiable. So these are all the sections we look at. There’s a whole list, more under different legislations. But the takeaway here there is hundreds and hundreds of things that they have to do where they fall short.

They have to give you a key fact sheet. So they have to give you a summary that says how much the loans for basic information, how much your repayments are, all of that high level so you can just look at the front page and go, “Okay, it’s a 30-year loan. These are my repayments. These are my rights. This is the interest rate. This is the penalty rate.” All of that has to be there. If anything is missing from any of these closures, it’s serious. Two levels, either it’s a key requirement or it was a disclosure requirements. So remember those two columns I showed you on that checklist?

Either way, you’re entitled to compensation if they’ve missed that. So you can claim loss caused by that contravention and any other loss you can establish. But for getting this wrong loan or this bad loan you could have got in this position or got a different loan, or paid less interest somewhere else. All of that is claimable. And this is awarded for every single breach. So if we can find three or four breaches, then it’s not like, well, one size fits all. You get a penalty and compensation for every single one separately.

Other things to think about is the debt statute barred? So there’s only a certain amount of time. If you haven’t paid, made payments for six years, then they can’t harass you anymore. I always ask, people are still chasing me over 10 years after I cleared my debt and they’ve sold it because debt gets sold down the line. So if you’ve got a debt with Westpac, they go, “Look, we’re in the business of lending money. We’re not in the business of chasing people for debt. We’ll sell it off to Credit Corp or some other debt buying agency.”

And they say, “Here’s a $100 million worth of debt. Here’s our loan book. This is all delinquent debt. It’s six-months-old.” So the more recent the debt, the more it’s worth. And the Credit Corp may say, “Look, we’ll give you five cents on the dollar.” They buy that loan book. They buy a $100 million worth of debt for five cents on the dollar. And then anything they can collect over five cents is their profit margin. So they’re in the business of collecting debt. And then once they’ve really worked that loan book, they’ll sell it to someone else.

So the older, the debt, the less they pay. So people will pay a fraction of a cent on the dollar just to have a go. And it’s worth it for them because 10 years later if I’m doing well and people do tend to recover if they hit rock bottom and they go bankrupt or whatever, and people don’t know that debts are cleared. After six years, it’s over. They have no legal right to chase you. If you’ve gone bankrupt, then they have no right at all after the bankruptcy clears the debts and they can’t come after you.

Has there been a change of your financial circumstances? So if you are over-indebted, it’ll be because of one of two reasons, either way it works for you. Has something happened since you got the loan? Did you lose your job? Did you get divorced? Life happens and you have certain rights to vary or change that loan. It’s all very negotiable.

Secondly, was the loan wrong in the first place? Because if you’re not able to pay now, either you were never able to pay and they shouldn’t have lent to you. The onus is on them under the responsible lending provisions of the act. Or you could afford it when you borrowed it, but something has changed since and now you can’t afford it. Either way, you’ve got some rights. So did you have the capacity to pay when they lent or did the broker or the lender, or did they look at the figures wrong? We have had many a success by calling on the loan documents and having a look at what they knew when they lent to you. And should they have lent to you because there’s certain bars that you have to meet.

And if they gilded the lily a bit or let you through when they shouldn’t have, then that’s on them. The other thing is, was there some unjustness about lending to you? Was it irresponsible lending? So we’ve had clients go in and say, “I want to reduce my debt.” And they’ve given them a loan that doesn’t reduce their debt with a higher interest rate, or it’s not the right product fit, but it’s a product they get more commission on or whatever. So there are ways to challenge this. And the great news for you is that the onus is on them to produce the documents.

I found that out the hard way, because I was going back five years looking for loan documents that I’d probably throw it out when I did a clean out, trying to find it. And I thought, “I can’t find it. So I can’t prove it.” No. Under the law, you ask them. They have to produce everything. They even have to produce their internal files, their assessment sheet for when they gave you the loan. What did you tell them? What did they look? What was their working? How did they calculate it? You get the right to see all that, so you can challenge them for irresponsible lending or a loan on fit for the purpose or all of the other things you can go for.

Was the loan unfair? Was it unsuitable? Did it meet your needs and requirements? So we look for all those things. Any one of those is a black mark against them. And did they lend responsibly? There’s a very, very high onus, even higher now post-Royal Commission to lend responsibly. And if you can’t sort it out with the bank, you can go to AFCA, the Australian Financial Complaints Authority. No skin off your nose, no costs there are. No lawyers. It’s an external dispute resolution scheme and they make orders against the bank.

If you don’t win there or you don’t get an order, you just go whoopsie and you walk away. But we have had clients getting $370,000 just wiped up off a mortgage by AFCA. They have the power to that. The banks can’t appeal that, they can’t go to court over it. They’re bound by the AFCA members’ decision. Another client the other day had $550,000 just written off a mortgage because of ticking one of these boxes where the lender didn’t comply.

Has the amount that they’re claiming, is the debt calculated correctly or have they loaded on charges? You’d be so surprised at how things rack up, especially if you’re cross-collateralized with debt. They will play funny games with loading debt onto one property or one loan as against another. And if you’re not checking it, your balance is going up and up. And they haven’t used the right sums and metrics as per the loan agreement to calculate that debt. So just have to make sure. They don’t always do the right thing by you.

And what about the fees and charges? Are they unconscionable? Are they unjust? So loan sharks who charge 50% per annum, that can be challenged. Are there compassionate reasons why the loan should be written off? They still have the right under the legislation, the external dispute resolution scheme or the court can write off a loan if there are compassionate grounds. If you want to check out your situation and where you sit with your debt, whether it is over-indebtedness, which is a good 30%, a third of the population. So chances are a third of the people watching this session. You have some very, very good claims if you’re over-indebted.

Because it could only ever have happened from a change in circumstance, or you’d never should have qualified or got the loan in the first place. And there’s lots of things we can pick apart there. Or if you’re carrying a debt anchor and you’re just looking for a strategy to navigate through, reduce it, get it off your hands so you can put all your energies into growing. Because you’ll never get ahead while you’ve got that concrete on your back. I’ve made my debt counselors available to you for a limited period of time.

So if you want to book an appointment, click on the link in the comments section and you can go through and it’ll give you availability of an appointment. The only thing that I’d ask is that you honor and respect their time in relation to that appointment. Because you got so many rights. I don’t want to see people laboring under debt paying more than they should and never, ever getting ahead and reaching their full potential. So if you don’t know what you don’t know, you’ll never ever look at it.

If you do want to empower yourself and take advantage and leverage off that knowledge and you book an appointment, can you please show up for it? They’re going to put their time aside for you if you can honor that and be there. Because if you don’t show up, just don’t have the resources and the bandwidth to be rescheduling and chasing people. So book an appointment there or take it offline, have a look at where you fit and where we could possibly rearrange things and what your rights are, because there will always be a way.

There are so many options out there. It’s just beggars belief that people don’t know. Let’s take it online again now for some questions. Has anyone got any questions around anything that we’ve been talking about? I know it’s hard because of the whole taboo around it and the shamefulness. That’s why I said book an appointment and we can take it offline and talk about your actual situation, where you’re at, how you got this debt. Good, bad. It doesn’t matter if you’re in default or not, you can be honored. I could pay my $800 a month. It’s just I didn’t need to. So that was money might as well, put it in the middle of the table and lit it all and just burnt it. But that’s the wastage that’s going on out there. And it hurts at the end of the day.

No questions there. For those of you who want to book an appointment then, we’ll take it offline with my trained debt counselors and see where you can fit and where it can be chipped away at. Thank you so much for joining us. Any other suggestions, any experiences, comments, questions, leave a comment below and I’d welcome topics, suggestions, questions, anything you want to know more about. Send us a message and we can bring you the information you need. It’s all about empowering yourself through knowledge. Have a great month and we’ll catch up next financial year in July. See you then.

If you’d like to receive more videos like this one with updated tips to help you grow and protect your wealth, hit the subscription button to join our channel. And also hit the bell sign to receive notifications every time we release a new video, so you can stay up-to-date with what’s happening in the market.