Is Australia heading towards a debt crisis?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on November 25th, 2021       

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Australia might be heading towards a debt crisis soon. This is the prediction based on a new study by the Salvation Army that indicated more people than before are unable to cope with their debt.

According to the data released by the Salvation Army, the average debt in Australia is at a debt-to-income ratio of 190%, but those most vulnerable, such as part time workers, carers, and pensioners, have accumulated a debt of $2.55 for each dollar earned.

Australia’s debt situation

It is not just the Salvation Army that is warning that Australia is heading towards its worst financial crisis in decades, but this was also echoed by the International Monetary Fund (IMF) and the Daily Mail. The IMF in fact added that the high debt levels in the country could make Australia vulnerable to interest rate shocks. Adding to that, the Daily Mail indicated that Australia’s household debt is 175 points more than its GDP, which is a warning sign that a crisis is looming.

Reasons for the expected crisis

As the Salvation Army’s report indicates, the factors that are leading toward a financial crisis is the housing crisis and the high cost of living. With 37% of people’s income spent on rent, which has been increasing by 7% and electricity by 24.9% in the past 10 years, this led to the cost of living exceeding the low wages. Underemployment and causal employment in Australia are affecting people’s ability to manage their accounts. This is despite unemployment numbers decreasing by 2,200 to 716,600. 

The result is that many people choose to go into debt, mostly bad debt as in credit cards and personal loans that they are unable to pay back. In fact, according to the Australian Bureau of Statistics three in four households are in debt according to the 2015-2016 figures. This is an increase of 72% from the previous year.

The numbers don’t look great however the Australian economy is quite a resilient one, there are many strong, positives attributes that continues to drive Australia’s growth.

If, however you have put yourself into a position where your debt levels are reaching an uncontrollable level, you need to take responsibility of your finances and follow some of the following options that are available to you:

  • Consolidate your debt
  • Downsize your home or move into a more affordable area
  • Downsize your car or decide to only own one instead of two
  • Use public transport
  • Eat in
  • Switch off the lights
  • Create a budget and stick to it

The reality is that no-one necessarily needs to be in too much debt in Australia if they don’t want to be. In Australia we have a very low unemployment rate which means that most Aussie’s are employed and earning an income. It’s how you use that income which makes all the difference. Having debt is OK and part of life, use it to your advantage and live within your means.

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