Debt and Credit

It is no secret that Australia has some of the highest levels of debt in the world. Household debt has risen steadily…it is now 400% higher than it was 27 years ago. It’s little wonder that this is the case as more and more of us rely on credit cards and personal loans.

While many other countries have gained some control on their levels of personal debt since the Global Financial Crisis, Australia’s debt conundrum doesn’t look like it will be solved anytime soon.

Australia’s debt crisis

The majority of Australia’s debt comes from home loans and mortgage investments. Lower interest rates have made debt seem more affordable, while a plethora of financial providers have made loans more accessible. The government likes to continually remind us that they (and only they) can pull us out of the crisis.

10 years ago, Australia avoided an all-out recession by luck of a resources boom. Now that the boom has ended, ordinary investors are rightly concerned about the possibility of rising household debt leading to a slower economy.

The role of income and interest rates

Australia’s debt levels have eclipsed our income growth, leading to a debt-to-income ratio of 88%. Any changes to interest rates or a fall in housing prices in the future have the potential to further complicate this continuous debt cycle. Add in the low growth in income, our levels of personal (as well as public) debt are major concerns for both individuals and the wider economy.

Debt bubbles and credit crunches have decimated wealth, destroyed jobs and ruined families. And the current debt crisis is escalating at an alarming pace. So how can you protect and grow your wealth in a financial crisis? Find out here.

Money Morning Australia