Over-Committed? Australian Debt Levels

  • October 5, 2016
  • Kate Sheehan

Debt Australian debt levels and how Australians are racking up debt like it’s going out of style!

This week the International Monetary Fund are very concerned about Australian Debt and that Australian’s have not heeded private debt warnings.

Wealthwise wrote on 20 March 2015:

You may be shocked to learn that Australian ‘debt-to-income ratios’ have increased from 191% at beginning of the last GFC to currently 206%. Barclay’s research shows Australian households are the most indebted in the world.[1]

In economic speak, ‘household debt’ includes mortgages, credit cards, overdrafts and personal loans. This is a key measurement when determining Australia’s level of vulnerability should there be another global financial crisis (GFC).

Barclay’s Mr Davies says, “Australia leads the global field, with credit continuing to pile up while the rest of the developed world is paying it down.”[1]

What does this mean for Australians?

High household debt and cost-of-living can add enormous financial pressure to individuals and families. When you have high debt and the prices of assets are going down (deflation) it is easy to experience stress trying to pay off a mortgage. If you add sudden unemployment to the mix, there is a very big problem.

Use this guideline to see if you have ‘mortgage stress’ … are you spending more than 30% of your pre-tax income on your home loan repayments?

If your mortgage takes more than 30% of your pre-tax income then you may have less to spend on essentials and other things. Unfortunately, when people are struggling to pay off a large mortgage, they can turn to credit cards as a temporary fix but credit card debt can quickly get out of control, compounding the debt burden.

3 Ways to Avoid Financial Stress

You can’t control interest rates and the basic cost of living but you can:

1.  Hope for the best but plan for the worst – in case you suddenly lose your job or can’t work because of illness, trauma, Total and Permanent Disablement (TPD), it’s important to have income insurance arranged.

2.  Live within your means – you need to be realistic with your spending. It is fine to think about your dream home but don’t buy a house you can’t comfortably afford. Put your financial security first.

3.  Think twice – Credit card debit is the worst of all debts. Before you put a charge on your credit card, think about it. Reconsider your need to buy. It may be better to save up for a bit longer to avoid financial stress.

Where to now?

When it comes to Australia’s debt levels, there have already been some warnings regarding possible financial instability.  So it’s a very good time to look carefully at your personal debt levels and do what you can to reduce and debts.

At Wealthwise we like clients to be well-rounded in their financial affairs.  This means getting a handle on debt as well as learning how to make your money work for you.

Stock Market Investor Education:
Invest for Success’  is a face-to-face weekend course with Wealthwise Co-founders, followed by 4 x 1 hr online sessions over the following month.  Call David or Kate for more information +61.2.9488.9900.



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