Debt help: Q+A with Schreditcard founder Peter Kates
Peter Kates of Pre Approved Finance founded debt clearing process Schreditcard as an innovative solution to the nation’s growing debt problem. Getting rid of debt quickly is everyone’s goal, but often necessary (and not so necessary) expenses jump to the front of the queue. Peter Kates talks to Money Buddy about Schreditcard and how it could expediate elimination of your credit card or home loan debt.
Money Buddy: Hi Peter, before we get into the details about the Schreditcard product, what made you start the project?
Peter Kates: As a mortgage broker I have come across many home loan applicants with too much personal debt to qualify for a home loan - most of the debt was credit cards. When assisting applicants with a basic budget, I was amazed how quickly they reduced their credit card balance once their income was focused on paying off as much of their credit card as possible. I discovered that it is as much a mindset as it is simple mathematics.
When I explained how long it would take for them to pay off their credit card by only making minimum payments, I soon got their attention - particularly when they realised it would take longer than their mortgage! It was at this time that I considered developing a credit card system that worked more in favour of the consumer.
MB: Sum Schreditcard up for us in simple terms.
PK: Originally I wanted to bring to the market an innovative credit card allowing salary credit. Whilst encouraging reduction of credit card balance, the Schreditcard would also pay the credit card holder interest once the balance is paid and in the positive. You could also access funds with more flexibility and minimal fees.
MB: So would you call Schreditcard an actual product or more a process of smart debt elimination?
PK: I’d call Schreditcard a process rather than a particular product for the most part.
MB: Can you explain to our readers what "salary credit" is?
PK: Sure. Salary credit is a service that banks and lenders provide, allowing your paymaster to pay your salary directly into your bank account. The Schreditcard process, on the other hand, redirects your wages to your credit card instead, reducing your debt and ensuring that, even after your regular expenses, extra money sits on your credit card to minimise debt, rather than doing little in a bank account. Credit card interest is therefore reduced and your debt will be cleared quicker. In short, your money works harder to clear your debt.
MB: What do you think is the biggest obstacle to people dealing proactively with their debt?
PK: With the ease of credit card availability and non-urgency of repayment of debt in full, many consumers don’t have a particular date or goal to have debt paid off. This culture has been created by lending bodies that see credit cards as a huge cash cow. Imagine if credit card companies were made to display a graph with each credit card statement, stating, "At this rate your credit card will take X years to payoff", it would get everyone’s attention from the first statement and consumers would be less likely to treat their credit card like a phone or electricity bill.
MB: That’s a novel idea. I think that most of us would welcome that development to help pull things into perspective. Following the recent credit crisis, it’s surely hoped that the Financial Ombudsman will suggest such a change.
PK: Most people are ok with debt when there is more definite accountability and consumer awareness. For example if your credit card was $10,000 at 18% and you, for one reason or another, only elect to pay the minimum of 2%, it would take over 50 yrs! Imagine that graph on your statement! I am sure that info would motivate more than the minimum repayment.
MB: Definitely. So how has the reaction been to Schreditcard in general?
PK: For the most part I have received a very positive response, in particular from credit card holders that are seeking some guidance with managing their debt. What I have noticed from emails and calls I have received is that credit card debt is an issue regardless of income and economic background. I have approached a number of banks and credit card operators and although they agree that Schreditcard is a good debt management system, they are all reluctant to take the idea and develop it as a tangible product.
MB: What would you consider your greatest success so far?
PK: Prior to submitting the Schreditcard as a 2020 summit proposal, I wrote to Paul Clitheroe and outlined what I was proposing. After a very positive response from Paul I was fortunate to meet up with him. Paul saw a future for Schreditcard and has encouraged me to continue seeking options to develop it. According to Paul, with the GFC it is even more apparent that new, more responsible finance products will need to be created to meet different and smarter consumer requirements. This feedback and support from one of Australia’s most respected finance commentators was a huge boost.
MB: What do you hope to achieve with Schreditcard?
PK: At first glance you think, "How would lenders make money if all their credit card holders had a minimal balance?" However my thoughts are that the first credit card operator to offer this would potentially attract so much kudos and new customer base that it might compensate. I am still currently seeking a joint venture partner that has the business culture and ethos to take advantage of my proposal. I am not just talking Australia but overseas as well. Schreditcard could, in part, be an antidote to the world credit crisis.
MB: That’s a positive thought. Best of luck with it and hopefully we all can learn to manage our finances better by altering our attitude towards ongoing debt. Thanks for your time, Peter.