Topic outline
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Suggested Procedure
- Read the following mini case and prepare responses to each of the questions provided:
Consider Allen and Meagan, for whom you provided a life insurance needs assessment, and their current consumer credit and debt position.
Allen works as a physiotherapist part-time and earns a $52,000 annual salary. In addition to this job, he runs a personal training business, from which he earns $45,000 annually. Allen’s tax, Medicare levy, and Medicare surcharge levy total to $26,674 against this income. Meagan works as an audit manager at a mid-tier accounting firm, and earns $128,000 p.a. Her tax, Medicare levy, and Medicare surcharge levy total against this income amounts to $39,152.
Allen and Meagan live in their own home, currently worth $695,000, against which there is a $175,000 mortgage loan with 10 years remaining until fully paid. Their monthly mortgage repayments are $1,852.
Allen and Meagan make certain payments through a credit card, which has a credit limit of $32,000. Although they attempt to ensure the credit card balance is progressively being paid off, it has a current balance owing of $18,000. They have been provided information by the bank that a monthly repayment of about $680 will allow them to repay this debt within the next 3 years. They intend to follow this repayment schedule but are concerned that they have been adding approximately $120 in additional debt to the balance owing each month, which will also need to be repaid in full each month to meet their plans to be free of credit card debt within the next 3 years.
Allen has a car worth $35,000, against which there is a loan of $18,000, which has three years remaining. Monthly repayments on this loan amount to $577. Meagan’s recently acquired car is worth $80,000, against which there is a loan balance of $55,000, with 4 years and 11 months remaining on the loan contract. Megan’s monthly repayments on this loan are $1,170.
Evaluate Allen’s and Meagan’s current consumer credit and debt position:
- Are they using credit wisely?
- What does the credit ‘rule-of-thumb’ suggest about the sustainability of their consumer credit position?
- Do you have any recommendations for Allen and Meagan?
- Compare your responses with the suggested solutions.
- The course teaching team will be facilitating discussions during the week and will summarise any key differences in ideas after everyone has had a chance to respond.
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