Understanding the problem
If you've read a newspaper recently, you've probably seen a lot of headlines referring to debt. Not just government debt, although that features heavily, but also personal debt, too. That's because Australians are some of the most heavily indebted people in the world. OECD data from 2015 shows that our household income to debt ratio is 212%, meaning that for every single dollar we earn, we owe two to someone else.
All up, we have a collective personal debt of more than $2 trillion––a number that is bigger than the size of the entire Australian economy. According to ASIC, we currently owe more than $32 billion on credit cards alone. That's an average of more than $4,200 per credit card holder! But credit cards actually make up only a very small percentage of household debt. The vast majority of it consists of mortgages and loans for investment properties.
The great Australian scream
Australians love property. We love to talk about it, we love to renovate it, but most of all we love to own it. For most baby boomers home ownership was a given, but for those trying to enter the market now it is increasingly difficult. There has been a general feeling brewing for a while now, especially among millennials, but the stats really do tell the story. OECD data now shows that Australia ranks as the 9th most unaffordable country for housing, up from 29th just five years ago. Both Sydney and Melbourne now rank in the top ten least affordable cities in the world for housing.
Huge house prices mean huge loans to pay for them, and many are willing to take on a large mortgage in order to secure their dream. After all, property is still a very desirable investment, and is rarely seen as 'bad' debt. But with high repayments, it can be easy to fall into financial stress. Around a quarter of mortgaged households are already experiencing at least mild financial stress, and that number will only grow if interest rates rise. If history is anything to go by, and it usually is, it's only a matter of time before interest rates rise and even more people start to feel the squeeze.
What you can do about it
So far we've identified some of the financial issues affecting people throughout the community. Here's a few bits of advice that you may find useful.
Seek debt help with a consolidation loan
For those struggling with credit card debts, repaying personal loans, or trying to meet repayments for household necessities, the best thing might be to consolidate several debts into one manageable, low-interest loan. A debt relief loan means fewer and more simple repayments, less fees, and the stability of one interest rate. As with any kind of debt help, it's important to reach early before things get really out of hand.
Create a budget
It's also important to work out a personal and realistic budget based on your income and expenses. Getting out of debt is almost impossible without a full understanding of where your money is coming from and where it's going. You might be surprised to learn how much that second coffee each day is costing you over the course of a year, not to mention the gym membership that hardly ever gets used. Once you have the full picture, you can begin to make adjustments based on your own individual priorities.
Set up a new account just for savings
If you're looking to save for a home or investment property, the process of working out a personal budget has just as much value. It's also a great idea to set up a separate savings account that automatically debits a set percentage of your income each month––that way you can save without even thinking about it. Most banks offer zero fee online accounts that are perfect for this type of saving.
Refinance to relieve mortgage pressure
If you're a homeowner struggling to keep up with your mortgage repayments, you might also consider refinancing your loan. Refinancing your mortgage means taking a out a new loan at a lower interest rate to pay off your existing loan.
Considering a debt relief loan or home loan? Speak to an expert at Rapid on 1300 467 274 before you make your decision.