Time to review household debt
Written on the 4 September 2018 by Arrow
Fuelled by rising house prices and low interest rates, the level of personal debt in Australia is relatively high compared to many other countries.i
The largest proportion of this debt is often used to purchase a valuable asset - the family home. With careful planning, you might be able to control your household debt and use it to grow wealth and secure your future.
Multiple factors drive debt levels
The level of debt has been driven by several factors, largely the record housing prices reached in the property market, a period of low interest rates and relaxed lending standards for home loans. As this chart from the Australian Bureau of Statistics demonstrates, the vast majority of household debt is in property loans.
Mean household debt by type of liability, 2009-10 to 2015-16
*In 2015-16 dollars, adjusted by the Consumer Price Index
Keep stress to a minimum
While housing prices are starting to slow down, interest rates are expected to increase which means that some may start to feel the pinch of mortgage stress. By getting ahead of the trend, you may take control of your household debt and minimise financial stress in the future. The key to achieving this is understanding which debts are good and which are bad.
Not all debt is bad
Bad debt is incurred to purchase items that decline in value or do not contribute to your wealth. This may include credit cards and personal loans, particularly if you've used them to purchase, holidays or a motor vehicle that declines in value the minute it's driven off the lot.
Regardless of the type of debt you have, it's possible to have too much of a good thing. Debt in any form carries a level of risk. Losing your job, borrowing beyond your means and interest rate hikes can all place your household in financial stress and make it difficult to meet repayments.
Keep your debt in check
Controlling your household debt is not always easy but it could generate great rewards. Talk to us if you'd like a hand managing your household debt.
First published: 1 September 2018