How to Cope with Record Household Debt

Household debt

While many developed countries have seen debt levels declining in the decade since the global financial crisis, Australia's personal debt is today among the highest in the world compared to GDP.

According to the latest OECD data for 2016, Australians owe a combined $2 trillion of personal debt, with the average household owing $250,000. This figure has more than doubled in the last 12 years, according to the ABS Survey of Income and Housing.

The household-debt-to-income ratio now stands at over 200%, meaning the average Australian is spending more than twice what they earn on mortgages, credit cards and other loans that could be trapping them in debt for years to come.

What is household debt?

Knowing what your debts are and how much of your income you're spending on repayments every month are the first steps to making positive changes. For most Australians, consumer debt includes:

  • Mortgages – accounting for over half (56.3%) of personal debt, according to ABS figures. While expensive, home loans are a form of 'good' debt that can build your wealth for the future, as long as you're able to afford the monthly payments.
  • Investments – buy-to-let and buy-to-sell properties, stocks and shares and other investments add up to more than a third (36.5%) of household debt.
  • Personal loans – whether it's to pay for a car, a holiday, a wedding or other expenses, personal loans comprise 3.1% of household debt.
  • Student loans – many Australians carry this financial burden through much of their careers, accounting for 2.1% of debt.
  • Credit cards – although it only makes up 1.9% of total household debt, for some people credit card debt can be a vicious cycle.

How to manage your debt

Not all debt is bad debt. The majority of household debt in Australia is paid on home loans and investments that can pay off in the future, but these can still cause problems if you're spending more on loan repayments than you comfortably afford, or if you're at risk of defaulting on your loan.

The best ways to lessen the impact of consumer debt include:

  • Budgeting – setting monthly goals to make sure you're spending within your means and not taking on more debt than you need.
  • Increasing your income – this can be easier said than done, but asking for a pay rise, changing to a higher-paying job, working overtime or starting a sideline business can help push your debt-to-income ratio in the right direction.
  • Streamline 'bad' debts – if you're struggling to keep on top of various loans and credit cards, combining your debts into a single monthly payment could make life easier and help you avoid high interest rates and charges.
  • Seek professional advice – if you're worried about your debt, the National Debt Helpline offers free counselling services or you can talk to a financial advisor for impartial advice about how to get out of debt.

For a confidential, no-obligation consultation about how to manage your debt more effectively, talk to Debt Fix's experts today. Call our financial experts on 1300 332 834.