Australia has a bit of a debt problem, these days.

According to the Australian Bureau of Statistics Household Income, Wealth and Expenditure Survey, the amount of debt has nearly doubled in the past decade.

The same survey indicated that some 30% of Australian households actually have more in debt than in assets or income. This makes them what’s called “over-indebted”.

The Reserve Bank of Australia states that as of this past March, Australian households in general have debt equal to 190% of their disposable income. That’s an all-time high. 

Even half of the wealthiest Australians are over-indebted. In fact, the RBA governor points out that the majority of housing debt is held by the top 20% wealthy portion of the population.

It’s getting more expensive just to live in Australia. Everyday costs such as housing, food, energy and education are all steadily increasing.

But as it turns out, there’s more to blame than just the rising cost of living.

Here are a couple of the biggest reasons more people are getting into deeper debt:

– Increased credit card use

– Taking out bigger loans to keep up with rising property costs

People willingly get into to debt with the expectation they’ll see a big return down the road. But debt quickly compounds when property prices go up and interest rates drop.

There’s also the slow income growth factor. While costs are rising, we haven’t seen incomes go up in the past year. This means that there’s less spare cash to put into the recreation and entertainment industries, investing or paying off debt.

This growing debt-to-income ratio is concerning because it’s just so unusual, even on a global scale. Major financial crises quite often stem from high household debt.

If you hold property assets, you probably take some comfort in the fact that their value is rising.

But as property prices increase, so does the debt that comes with it. We’re seeing more retired households still paying off mortgages because the prices are so much higher, these days. So not only is debt steeper, but it’s hanging on a lot longer than it used to.

Eventually, we may see changes in spending and borrowing behaviour affect interest rates and spawn new policies. 

In the meantime, you’d best make sure your debt is under control and structured correctly. We can help, at no cost to you.  Contact Funding Options to discuss your loans and refinancing options.

– Dom Cassisi, Managing Director