Why are you living just to pay your debts?
Nobby Kleinman is an award-wining ex financial planner who developed Money Rules, a personal money management program which anyone can use.
AMP.NATSEM has just released their report ‘Buy Now Pay Later – Household Debt In Australia’ and the picture is a very ugly one indeed. If you don’t live in Australia, I can assure you that the figures are much in line with the global situation of most modern economies.
As a percentage of disposable income, the level of household debt has tripled since 1988 from 64 per cent to 185 per cent.
It doesn’t matter how much you borrow, if you cannot afford to make the repayments, then you are drowning in debt! And here’s a well-known secret. You don’t need to earn more to pay it off. It has been found that ‘the more you earn the more you burn!’ Although having more income will help, the problem which caused the borrowing in the first place still exists.
Total household debt has increased from $60,000 to more than four times that amount at $245,000. Despite record low interest rates which were around 17 per cent in 1988 and today are around 5 per cent the mortgage is the greatest debt burden consuming around 56 per cent of income, with 3 per cent personal loans, 2 per cent student loans and then credit cards on 2 per cent.
Without going into the rest of the report, the most frightening factor is that very very few people could stand a 2 per cent change in interest rate. This small increase would tip most people over the edge and cause massive financial distress which would have a huge ripple effect throughout the economy and the population. Over the last 20 years interest rates have declined, credit has been much easier to access and the GFC (Global Financial Crisis) was a rude shock to many which resulted in many people diligently paying down credit cards.
Mortgage debt was highest amongst the younger aged population which made sense as they haven’t been paying for as long as the older population aged 50 – 65 year olds. It is little wonder that debt ratio levels for younger people was higher with many being excluded from a buoyant property market where they are competing with overseas buyers with deep pockets, forcing local buyers to pay more, move further out, or continue to pay rent. Those at greatest risk of interest rate increases are 30 – 50 year old mortgage holder, the most indebted households whose percentage of income would rise dramatically to meet the mortgage repayments.
Although the report presents a grim picture, it doesn’t offer any solution. After all, what is done is done and no financial institution is going to give you an easy way out. But it is for the very frightening realities of this report, that the Money Rules program was developed. Even without changing lifestyle, it will help people to manage debt, saving wasted interest repayments and years of lost time.
Sometimes, the answer could be staring you in the face, but it isn’t obvious until something prompts you.
Retailers are enticing people to spend more and more of the ever precious income, and people always give in, promising to pay it off as quickly as possible. Then next month the credit card bill arrives and it’s just another amount added to the ever-increasing burden of debt.
Take the time to plan for next year now before the New Year’s resolution becomes another wasted memory.
Have you ever struggled with debt, and what were the measures you took to get out of it? Do you have any advice for people in debt?
Share your thoughts in the comments.
To find out more information, visit Nobby Kleinman's site here.
Related links:
7 credit mistakes that will affect your retirement
How to best manage your credit card
Consolidating debt is risky business