household debt

Australia's household debt-to-income ratio now exceeds 200 percent, making it one of the highest in the developed world. This means that the average Australian family owes more than twice as much in debt as it earns from wages and other sources of income.

Total consumer debt is now around $2.47 million in Australia, the equivalent to almost $100,000 in debt for everyone in the population. Financial services firm UBS expects this ratio to peak at 205 percent before slowly falling, but combined with slow wage growth, it's expected to take many years before disposable income returns to previous levels.

While many people owe a lot less than this average, others owe significantly more. With so many households burdened with repayments from multiple loans that are necessary for the life they want, there can be little left over to save for the future or cover unexpected costs in an emergency.

Why is consumer debt so high?

The most recent ABS Survey of Income and Housing (2015-16) found that household debt has almost doubled over the past 12 years, outpacing income and asset growth by a wide margin.

The majority of this debt (89 percent) is tied up in property loans, but the most common type of debt to have is credit card debt, owed by 55 percent of households. Other debt includes student loans and investment loans.

Rising house prices over the last decade have seen many Australians borrowing from SMSF funds to help them afford downpayments on homes and get on the property ladder, but borrowing from your retirement savings could leave you vulnerable in the future.

What is the debt-to-income ratio?

Your debt-to-income ratio tells you how much of your income you pay on debts each month or year. As well as being a useful guide for managing your money, this figure is also considered by lenders if you apply for a loan.

To calculate your debt to income, you need to add all your monthly debt repayments (home loan, credit card payments and anything else you're paying) and divide the total by your gross income (before tax and other deductions).

Try our free debt calculators to help you manage your finances.

How can I get out of debt?

If you're stuck in debt, less of your income will be free to spend on everyday expenses, bills and the things you enjoy, not to mention making it more difficult to save. People with a higher debt-to-income ratio are also more likely to have trouble making their monthly payments, which can cause serious problems if you default on a loan or need to pay a higher rate.

Increasing your income can be easier said than done, especially if you already work full-time, but asking for a pay rise, working overtime, securing a higher-salary job or starting a business all help to push the debt-to-income ratio in the right direction. You might also be able to raise money by selling your unwanted belongings.

You should also look into ways to pay off your debt faster. Ideally, high-interest loans should be paid first, as this means you'll pay less overall in the long term. If you're struggling to manage multiple payments every month, you could be better off consolidating your loans into a single monthly payment with a more manageable interest rate.

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Find out if you could benefit from refinancing your mortgage and other loans by talking to Debt Fix's experts. Call our team on 1300 332 834 to arrange your consultation or get in touch online.