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Reasons for Debt in Australia

21st September, 2015, No Comments

So you’ve wound up in debt and you can’t understand why? There are a number of reasons why people find themselves in debt. It can happen to anyone and often, all it takes is one event to knock you off financial track. Once your finances are off course, it can be incredibly difficult to get them right again.

The Australian Financial Security Authority is the governing body responsible for Insolvency actions in Australia. According to statistics released by AFSA, some of the more common causes of Debt in Australia include unemployment or loss of income, excessive use of credit, ill health and relationship breakdown.

Here are some of the more common causes of Debt in Australia and some preventative measures you can take to ensure you don’t fall into debt.

Unemployment, Loss of Income

There is no way to predict the future and even if you are lucky enough to have a long-term, stable employment, there is always a chance things could change at the drop of a hat.

If you were suddenly left without a job, could you cover your bills and living expenses until you found a new one? The majority of Aussies would say no. But there is a simple way to ensure you are covered in case of emergency – insurance. Many people scoff at the thought of income protection insurance, but for a small monthly amount it could save you in a time of need.

Different policies cover different things, but you can protect your income against sickness, injury and even involuntary redundancy. An income protection insurance payout will provide you with regular funds to keep up with your bills and everyday expenses while you recovery or look for a new job, sometimes for months on end!

Excessive Use of Credit

There are some absolute horror stories about people spending money they don’t have and falling into debt. Some have done it through their own poor decision making, and others have fallen victim to a string of unfortunate circumstances. For example, one client who contacted us for assistance with their debt had already sought help from their bank to consolidate their debts with a loan. They were lucky enough to receive a loan for $30,000 to pay out existing debts, but instead spent the money elsewhere; leaving them with $60,000 worth of debt they couldn’t manage.

While this might be an extreme example of poor financial decision making, it is all too common. So too are the cases of people being caught in a credit spiral, using credit cards to pay off credit cards. Once debts like these are acquired, they can be quite hard to shake but they can be easily prevented in the first place.

Money management skills aren’t taught in school, so by the time you start making and spending money, you are really only guessing what to do with it. Some people get it right, but many people get it wrong.

 By keeping a budget, you know exactly how much money you need and how much money you have to get through each day, week, month, year. By keeping track of your money and spending you are less likely to spend sporadically and make poor financial decisions. To get started with a budget, read our easy How To Budgeting Guide.

Don’t be afraid to speak to your kids about money. Let them learn from your mistakes, or if you are forming a budget, involve them in the process so they understand how important it is to plan, save and invest.

Relationship Breakdown

When you are in a relationship everything is shared. You share the rent, the groceries, the housework, the car. So when that relationship breaks down, what used to be affordable is suddenly doubled. Not only are your regular expenses quite costly, but you could be left with joint debts to pay on your own.

While it’s nice to think every relationship will last the distance, it doesn’t hurt to be conscious with your money. It’s wise to keep an account in your own name so if anything happens to your relationship, only you can access it. Make this a small savings account, so if your do break up, you have the financial support you need to get back on your feet and find alternative arrangements.

You should also consider life insurance. In the case of you or your partner passing away unexpectedly, you don’t want to leave the other with unaffordable debts.

Ill Health

Falling ill or injuring yourself can be a very traumatic time in your life. Add to that the mounting medical costs on top of your regular expenses and bills and your inability to work and you have a recipe for disaster!

While it’s hard to predict when illness or injury will strike, you can do your best to protect your income. This is also where income protection insurance would be a good idea. While it seems like just another ongoing cost, the peace of mind it provides in an emergency is worth every dollar.

Alternatively, you can try to create your own financial back-up plan by creating a rainy day fund. Financial experts recommend you save 3 months worth of salary in a high interest account to use in case of an emergency. This amount might seem excessive, but you know you will be covered financially for at least 3 months if anything ever happened to you.

Reasons for Debt in Australia

 

 

Already in Debt?

If you are already experiencing debt there are a number of options available in Australia to help you get your finances back on track. In fact, the sooner you act,  the more options you have available to you. If you are feeling a financial pinch and don’t know how to catch up with your finances you should consider one of the following options.

Debt Consolidation

Debt Consolidation is finding a loan large enough to cover your existing debts. By using your new loan to pay out your old debts, you are left with one interest rate and one set of fees, essentially reducing your debt and saving you money. It is getting harder and harder to find a debt consolidation loan, especially if you have a default or mark on your credit file. Luckily, there are a number of non-conforming lenders in Australia who still consider lending to bad credit clients. If you would like to apply for a debt consolidation loan, we recommend using Positive Solutions Finance.

Debtstroyer Agreement

A Debtstroyer Agreement can be your secret weapon against bad debt. This informal arrangement is negotiated privately with your creditors so it isn’t marked on your credit file. This avoids an insolvency action so you aren’t left with any long term consequences like with Bankruptcy. A Debtstroyer Agreement can freeze your interest and fees and reduce you overall debt amount. It could be paid off over time or in one lump sum repayment. If you are in financial hardship and think a Debtstroyer Agreement would benefit you, call us on 1800 00 3328.

Debt Agreement

A Debt Agreement is a way for you to reduce your debt, freeze your interest and repay your creditors to eliminate your debt. Proposing a Debt Agreement is asking your creditors to review your repayment arrangement and reduce it to a level which you can afford. A Debt Agreement will give you more time to repay you debt and will put an end to the harassing phone calls.

Bankruptcy

Are you considering bankruptcy to get out of bad debt? Have you considered your alternatives? Bankruptcy comes with a number of harsh consequences and restrictions which intrude on your life for a number of years. To avoid these consequences, you can consider a number of other debt relief options before Bankruptcy even comes on the table. To speak to a professional debt relief expert about your debt situation call us today on 1800 00 3328.