Personal and household debt is a hot topic in Australia, impacting a significant portion of the population. In fact, Australia has some of the highest levels of household debt in the world! And while Australian house prices are certainly a big driver of increasing loan sizes, there are many other easily accessible forms of borrowing in day to day life, from credit cards to car loans to Afterpay.
Do you ever stop and look at your bank account and wonder how others are staying on top of it all? Recent data from NAB’s Australian Wellbeing Survey established that over 38.00% of Aussies carry debt on at least one credit card so you are likely not alone in having debt to manage.
Here are some interesting statistics about debt in Australia:
- Credit cards: According to Finder’s Consumer Sentiment Tracker data, 68.00% of Australians say they have a credit card, and around 20.00% have at least two.
- Home loans: A close second, impacting 29.00% of Australians.
- Buy Now Pay Later (BNPL): A growing concern, with 22.00% of Australians utilising these services and potentially accumulating debt.
- Personal loans: Affecting approximately 17.00% of the population.
While borrowing can be a useful tool, it can also be a pathway to losing financial control. As former American president Thomas Jefferson once said, “Never spend your money before you have earned it.” But in today’s world, with instant gratification and easy access to credit, this advice can seem almost impossible to follow.
The pressure to keep up with the latest trends and maintain a certain lifestyle can make it difficult to resist the temptation of using credit and we are bombarded with messages encouraging us to quite literally, buy now and pay later which normalises the concept of debt.
However, it’s crucial to remember that debt can quickly spiral out of control, leading to financial stress and hardship.
Understanding your own financial situation, creating a budget, and making informed borrowing decisions are essential steps towards financial wellbeing. Effective debt management is crucial if you are to avoid finding yourself overwhelmed by debt.
Loan Management to help you save
Paying off debt is a smart strategy for saving money. It helps minimise the fees and interest you pay while paving the way for a more secure financial future. If you’re unsure where to start, here are some steps to guide you:
- Assess Your Debt: Determine exactly how much you owe.
- Seek Guidance: Consider consulting a financial professional to develop a comprehensive debt repayment plan.
- Create a Budget: Identify how much you can realistically allocate to debt repayment.
- Prioritise: Focus on paying off high-interest debts or essential bills first.
- Take Action: Begin making payments, even if they are small, to gradually reduce your debt.
- Adopt a Saving Mindset: Look for ways to cut expenses and boost your savings.
The lost art of saving
Remember, the earlier you start, the better. Taking action now can prevent manageable debt from escalating into a major issue. Additionally, aim to save 10.00% of your income to build a safety net for unexpected expenses and to enjoy life’s little pleasures. Once you have tackled immediate debts, consider prioritising the reduction of other debts and establishing separate savings funds, investing those savings in a diversified portfolio for long-term growth.
Do you really need a Credit Card?
Cancelling your credit cards can be a prudent financial decision for several reasons. One significant factor is the high average interest rates, which hover around 22.00%, making it very expensive to carry a balance.
Additionally, credit cards can encourage poor spending habits, often leading to overspending and impulsive purchases. This behaviour not only increases the likelihood of accumulating debt but can also result in hidden fees that further exacerbate financial strain. When debt starts to spiral out of control it is important to evaluate whether keeping them is truly beneficial for your financial health.
Steering Towards Success
In summary, it’s essential to limit spending, manage credit cards effectively, develop and adhere to a budget, and set aside monthly savings to establish foundational financial security. However, the biggest challenge often lies in managing the largest liability on a family’s balance sheet: the mortgage. Locumsgroup financial advisers and mortgage services team can help, enabling you to achieve a financially stress-free life.
