The types of debt we have largely depends on our age and life stage.
For most of us, having debt in some form or another is an inescapable fact of life. And despite its reputation, debt is not necessarily a bad word.
If managed well, it can be a powerful tool for building wealth, and good debts, such as those used to invest in an asset that increases in value – like property or shares – can do just that.
Borrowing to fund a lifestyle you can’t really afford, for big ticket items such as new cars and holidays, is an example of bad debt. It’s not always possible to avoid bad debt, but you should try to minimise it.
Often the types of debt we have at the age of 20 are very different to those we have at 50.
Read on to discover the most common types of debt held by your peers, from the AMP.NATSEM report – Buy Now, Pay Later: Household Debt in Australia, and see if your financial circumstances match your debt age.
Younger people have the highest proportion of student debt as a percentage of their total household debt – at 8.3%.
This is because many students defer the cost of uni fees by accessing the HECS-HELP or FEE-HELP loan schemes, which they only need to begin repayments when their earnings meet the minimum repayment threshold.
This age group also has the highest proportion of personal loan debt – representing 5.4% of their household debt – with these higher interest, short-term loans used to fund purchases such as cars, holidays and other consumer products.
Perhaps surprising is that home loan debt is the largest contributor to household debt in this age group, at 58.3%, signalling that many young people are making it onto the property ladder.
Home loans dominate household debt amongst this group, accounting for 62.8%.
Investor debt also begins to increase among accumulators as a way to build wealth through taking out a loan to invest in shares or property, representing 31.7% of all household debt; while student loans, credit cards and personal loans barely rate at less than 3%.
Investor debt (46.3%) overtakes home loan debt (45.9%) as the biggest contributor to household debt in the pre-retiree group, who are paying down their home loans and looking to grow their wealth as they approach retirement, through investments in property or in shares.
Many retirees own their own home outright, reflected in the fact that home loan debt comprises only 28.2% of total household debt for this age group.
Compared to the other age groups, retirees have had a longer time to pay off their home loans, while some may have also used their super to pay it off completely. But compared to the past, more retirees are carrying more home loan debt over into retirement, with this figure up from 19.6% in 2004.
Investor debt represents 59.7% of household debt for people aged over 65, while retirees are also among the biggest carriers of credit card and personal loan debt, at 5% and 5.1%, respectively, perhaps reflecting their desire to travel, or need for additional cash to fund their retirement.
Regardless of what type of debt you have – or its size – managing it effectively is crucial. As a first step, it’s a good idea to have a budget to get a clear picture of your financial situation.
Once your budget is in place, you can consider your financial goals.
If reducing your debts is one of these, start a conversation with us today. We can help you to devise a strategy to keep your repayments on track so you can be debt-free.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Sensibly Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
Shanley Financial Planning Pty Ltd trading as Steve May Financial Services (ABN 19 612 825 180) is a Corporate Authorised Representative of (1265706) of Sensibly Pty Ltd (AFSL 533923)
Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)