Personal Debt Reality for Australians

By: Julian Thornton

Ever thought to yourself, “I’m in the worst possible financial situation, and I’m certain every single person around me is in a far better position"?  It’s something a lot of people think, because when you suffer from financial problems, it can be one lonely place.  Australia is often regarded as ‘The Lucky Country’ and the economy is doing well.  Unfortunately the personal economies aren’t doing as well.  Personal bankruptcies are on the rise and the total household debt for Australia is around $650 billion, which equates to about $32,500 for every man, woman and child.  That’s a lot of debt!  The really alarming fact is that household debt just keeps rising and it doesn’t appear to be slowing.  On a world scale, Australia rates poorly for personal debt.  The situation here is worse than that in the US and the UK!

For every $100 we make, $130 is owed! With shocking figures like this, it’s definitely time to do something right now.  Imagine the impact of another interest rate rise on people who are already incredibly over-extended?  The situation is serious, and now is the time for everybody to go start applying good money management practices.  One key aspect of good money management is getting rid of bad debt altogether.  The next logical question therefore is, “What is bad debt and what is good debt?"

Bad Debt and Good DebtI know it may be hard to believe that any form of debt can be good, however it’s true.  Let me explain it all to you:

• Bad Debt:  This generally refers to credit card debt that incurs high interest.  Often people will accrue bad debt by using credit to buy things they do not need and cannot afford.  If the debt is negatively impacting upon your life and causing great stress, it’s bad debt.

• Good Debt:  Good debt refers to using credit to buy things that improve our financial future.  Examples may include a loan for a property (with a low interest rate) or even a tax-deductible, low interest loan to buy property, good shares, etc.

Improving your Financial SituationQuite clearly personal money management is an area Australians don’t excel at, and unfortunately a lack of skill in this area has dire consequences.  So what can we do in order to avoid sinking into the dark hole of debt?  Here’s a few things I recommend to bad credit clients I talk to daily:

• Start living within your means:   Know what money you have coming in, and what money you have going out.  If you have difficulty keeping on top of things, hire a bookkeeper who’ll keep you organised.  With this information, set a budget and stick to it.  Your financial future depends on it, because if you do nothing, nothing will ever change and you will always have money problems.

• Stop the impulse buying:  Sure it’s hard for some people to resist the temptation to spend whenever they walk into a shopping centre, however your financial future depends upon this.  You don’t need to be spending like it’s going out of fashion.  There are other things you can be doing with your life and money, so cut out the impulse spending and stop throwing your money away!

• Get organised so you don’t run out of money:  Many people scrimp in the days or weeks before pay day, but it can be avoided.  It all comes down to good money management.  Get organised, get a bookkeeper if you have to, budget and stick to it!

• Figure out how much you need in retirement:  I don’t mean to depress you, but retirement comes too soon!  You need to prepare for it, so you must determine how much you will need to live on when the working income stops.  As a rule of thumb, if you have one million dollars in the bank, you can live off about $50,000 interest each year if you were earning 5%.  How much do you need to live?  Determine how much and start preparing!  Seek out professional advice from bad credit mortgage experts if you need help preparing.

• Start saving:  Even if you don’t think you can save much, save something!  Try and save 10% of your income, and you will see positive results.  Create a savings plan and stick to it, because your financial future depends upon it.  Think about the money you throw away, and ask yourself how much you could have had if you saved it.

• Get rid of credit cards that charge more than 12% interest:  With credit cards like this, you’re throwing money down the drain just paying the minimum monthly repayment.  Devise a strategy to pay such credit cards out.  The best thing is to kill the credit card that is costing you so much in interest.  Opt for low interest credit cards and use wisely.

• Get committed to paying your credit cards off:  Did you know that for every $1000 in credit card limit you have on your cards, you lose $5000 worth of borrowing potential when you apply for a loan?  That’s significant, so pay off those credit cards and reduce the limits.  You really don’t need to have five figure limits on your cards!  Plan to pay off your cards and stick to the plan!

• Start saving for everyday:  Not just a rainy day!  Start a savings plan and stick to it.  You never know when you might just need that money.  If you have money tucked away, you won’t need to use credit cards which if abused, will only sink you further into the debt hole.

• Get money:  If you keep thinking you have no money, start thinking of ways to get money.  Do this by reducing your living expenses and increasing your income.  There is a great deal of money to be made online, so if you are interested in a passive income (which you certainly would be if you have no money all the time) start doing your research and stick to that savings plan!

Get Help Now!If you feel your bad credit/debt situation is too much and you are constantly sinking into a deeper hole, you must act now!  Call a reputable bad credit mortgage specialist and turn your financial situation around for the better.  Financial security is there just waiting for you, so take the opportunity today.

? Julian Thornton, Designer Mortgage Solutions Pty Ltd, 2006.

Debt, Loans & Business Cashflow
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