How big is your debt?

A global perspective

The amounts are eye-watering: the USA is in debt for 19.9 Trillion Dollars, China for 33 Trillion Dollars and Australia has 1Trillion Dollars of foreign debt. It is all because we spend more than we earn on a national level and on a personal level. If China falls over, Australia is in trouble and the worldwide economy is headed for a day of reckoning and who knows what that will mean.

Housing affordability

Interest rates have halved but the prices of homes have doubled. Incomes are going nowhere and there is high under-employment meaning lots of people can only get part-time or casual work when they really want to work full-time.

Affordability is all about how much debt you can pay for. It’s limited by your income and serviceability, and how much debt you already have. At this time Australian household debt is at record levels and Australia is number 3 in the world for the highest debt level.

Your debt level

How big is your current debt? Add up all your loans, car or vehicle loans, student debt, credit card debt, store cards balances, personal loans, business loans and mortgages and see what the total is.

It’s time to take charge of your level of debt and set up a plan for creating wealth. Some time ago I had a client who had a deposit, could pay for the loan, but they had a store loan and had bought whatever they liked on it, because it didn’t attract interest. Only trouble is all the home loan lenders didn’t like it and wouldn’t give them a home loan till it was paid off. It meant they missed out on the home they absolutely loved and in the next nine months a house of that quality went up about $150,000.

Credit card debt

Credit card debt and store cards are the worst kind of debt for the average person. I know there are worse loans such as Pay day loans, but once you’re in that territory, you’re in deep trouble. It’s amazing how much credit card debt so many people have. Most people only pay the minimum each month meaning the highest interest rates are applying to those debts which very often just get higher and higher.

Two big rules with credit cards:

Rule Number 1: only ever pay the entire credit card bill each month. You’ll save interest and the credit card becomes a convenience. A credit card is an accounting tool. It lets you know exactly how much you spend and on what. It can be great for budgeting.

Rule number 2: don’t buy something you can’t pay for. If you know you can pay for it at the end of the month, then it can go on the credit card, otherwise it can’t be bought no matter how desirable it seems.

A big lesson for the younger generation

Young people want to have everything now – from the home, the furniture, the 65” TV and the smashed avocado whatever it is. We all need to learn delayed gratification. Doo-dads simply drain you of all your money – limit them and work at getting loans that put a roof over your head or put money in your pocket. Doo-dads come over time.

If you don’t know where to start with your debt give me a call. If you want to get started in property give me a call. At present I’m helping a young man buy his first investment property and his income is just a little over $60,000. Not bad!

Mortgage stress

In Australia right now, homeowners are facing the highest level of indebtedness and the highest level of defaults in repayments. If something doesn’t turnaround soon we’ll see a very large number of foreclosure properties hit the market as homeowners reach the foreclosure stage or bankruptcy and mortgagees take possession. If you’re having difficulty making any loan repayments whatsoever, now’s the time to speak to a financial adviser or planner and get some guidance. There are ways to get back in control and to avoid bankruptcy or foreclosure.

____________________________________________________________________ Sandra Dignam is a qualified Mortgage Broker and Managing Director of Every Loan, as well as a member of the Finance Brokers Association of Australia

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