“How much debt is too much in Australia?”- Are you worried about your debt? Well, there are some specific things that you should consider to know about your excessive debt.
In simple words, if your earning is less and debt is excessive then your debt is too much. And if you are struggling a lot to pay off your debt then you are carrying more debt.
There are many other important things that will help you to decide how much debt is too much in Australia. In this current blog, I’m going to explain in detail about the warning signs of excessive loans.
How Much Debt is Too Much in Australia? BE AWARE OF DEBT TRAPS
In general, if your debt-to-income ratio is more than 35% then your debt is too much. So you must always balance your debt-to-income ration. And be aware of dangerous debt traps in Australia.
1. PAYDAY LOAN is Too Much Debt for Australians
A payday loan is a small amount of loan that is actually less than your monthly salary. And you promise to pay off this loan immediately after receiving your next salary. If you are opting for payday loans, this is the sign of too much debt.
You are having a lot of debts and you are not able to save money even for essentials till the next salary day. I feel this is actually too much loan because you may require a payday loan every month to handle your monthly expenses. There are many disadvantages to a payday loan.
2. Know How Much VEHICLE LOAN is Too Much in Australia
You should remember that if you can’t pay at least 20%-25% down payment then you can’t afford this debt. And if you can afford then your monthly repayment should not be more than 10% of your income. Also, you should be able to pay off the full amount in less than 5 years.
I’ve seen many people carrying car loans or bike loans. Most people like to have their own vehicle even if they can’t afford. This ends up in applying for vehicle loans.
3. Know How Much Debt is Too Much for Students in Australia
One can’t predict salaries and earning in the future days, but right now you should calculate it roughly so that you should repay your debt in the future days. You should pay off your loan with your first year’s salary. If you are not able to pay off with your first year’s salary this student loan is too much debt for you.
Planning a career is very important in student life. And you must know in the beginning only about your future opportunities and your career before applying for a loan for your education. So you should have a strategy to deal with student loans.
4. Maintain a certain limit for MORTGAGE LOAN
In case if you are planning to buy a house for you then it is always good to check that cost should not be more than 2.5 times your annual income. And here also you should be able to pay a 20% down payment.
Make sure your monthly payment should not be more than 28% of your monthly income from all the sources. If it exceeds 28% that means your debt is too much.
5. If your DTI Ratio is crossing 35%, You are Carrying Too Much Debt
Debt-to-income ratio (DTI) calculation is very important and necessary. This is a simple calculation of your debt ratio. The formula to calculate DTI is recurring monthly debt divided by gross monthly income. If this results in more than 35% of then your debt is too much.
So always make sure that you maintain the ratio very carefully. Your DTI ratio should not cross 35 percent. That means either you should reduce your debt or you should try to increase your income to maintain this ratio.
6. Applying for New Loans to Pay Off Old Debt
Well, there are many other ways to pay off debt quickly by earning extra money. So I suggest not to opt for new debts to pay off old debts. This will result in still more debts in your life. And you may not be able to come out of debt easily if you go on opting for new debts.
In my real life also I’ve seen some youngsters who opt for new debts to clear old debts. If you are also doing so, this is the clear sign of too much debt.
7. Too much CREDIT CARD Debt is not good for your financial health
If you can not pay off the whole credit card debt within 12 months then you are having too much debt. Well, you do not need to make any purchases just because you are having a credit card. Think twice before swiping your card.
If you ask me how much credit card debt is too much then I would say having more than or credit card is too much. I feel that one credit card is enough.
8. Your Credit card PAYMENT is MORE than Your Mortgage Loan
Usually, the mortgage loan amount is more than credit card payments. But if you are paying off more credit card payment than a mortgage loan that means your debt is too much. You should be careful about your credit card debt.
So if your overall credit card payment is more than your mortgage then now it’s time to be serious about your debt. I say never ever create such a situation where your credit card payment crosses a certain limit.
9. You are not able to make more than a MINIMUM PAYMENT every month
Minimum payment means usually paying off the monthly interest on your debt. If you are hardly paying off only minimum payment and not able to pay off a part of the principle then you are carrying a huge debt.
So you must always be careful before choosing debt for you. You should calculate how you will pay off your debt quickly. If you are not able to pay off more than minimum payment this reflects that you are having too much debt.
10. You are Having Too Much Debt If You Can’t Save $1000 Quickly
Saving money is really necessary and important. You should always contribute some part of your salary for an emergency fund. If you are living in countries like the US then you should have a $1000 emergency fund.
If you do not have this emergency fund and even if you can not save 1000 dollars within the next 3 months then you are having too much debt. Yes, if you are not able to build this minimum emergency fund that means your most part of income is being used only for repayment of loans.
11. Net Worth should not be less than ZERO
If your net worth is less than zero then without any doubt you are having too much debt. And this situation actually dangerous. So you should pay attention to your all the debts.
Balance your assets and liabilities. In simple words, your debts should not be more than your assets. That means your net worth should not be negative.
12. Know How Much Personal Loan is Too Much in Australia
Taking a personal loan for marriage or parties is not actually necessary. But if you have taken a loan or if you want to take a personal loan then do not opt for too much debt.
If at all you want to take debt for a wedding then I feel that you should be able to pay off it within 2-3 years. If you are not able to pay off within 2-3 years then you should reduce the amount. Take an affordable loan.
13. If Your Pockets are always empty to pay MONTHLY BILLS You Are Having Too Much Debt
Every month if you pay off your debt and at the end of the month if you struggle to pay a grocery bill or utility bill then you are carrying too much debt.
No matter whether you have a student loan or any other debts, too much debt is really stressful. If you are not able to pay your bills and not able to manage money for monthly essentials you are having too much debt.
14. Poor Credit Card Score Means Too Much Debt
Credit card scores define your credit status. If you use a credit card too much and do not pay off on time then your credit scores will be low. This is the sign of too much debt.
You should pay attention to your credit scores by being aware of your expenses. Maintaining good credit scores have their own advantages. So do not opt for too much debt through your credit cards.
15. If Your Creditors Call You Often You Are Having Too Much Debt
If you find your creditors’ name in your phone call list often rather than your best friend’s name then you have too much debt!
Usually, credit agencies call often when the due date is over. So make sure you pay off all the debt timely. If you are not able to pay off monthly payment and getting calls from your creditors that means you are in too much debt.
16. You Have Too Much Debt, If You are SKIPPING YOUR MONTHLY PAYMENT
When you start to skip your monthly payment of a debt that means you are not able to manage that debt. You are carrying more debt beyond a perfect DTI ratio.
So always live below your means by being frugal and make timely payments. If you don’t, then you will have to pay more interest and your debt will go on increasing.
17. Getting charged ‘over-the-limit fee’ on credit cards
There are some rules to use your credit cards. So if you are overusing and using more than the limits then you will have to bear the extra fees.
And if you are frequently paying fees for over-the-limit, you have too much credit card debt. So you should set your own limits to avoid too much debt. Use your credit cards carefully and never opt for too much debt. If you have a credit card that does not mean that you have to use it every time.
18. Selling out your house to PAY OFF DEBT is too much debt
I’ve realized that when debt is too much then people sell out valuable things like car, gold and much more to pay off debt.
And when people do not find any other hope to pay off debt then they think of selling out their own house. So if you ever felt like selling out your house to clear debts then this is too much debt.
19. Even if you get advance salary You are NOT able to SAVE MONEY
If you get advance salaries and still if you are not able to save money every month, you are having too much debt. That means, you are using your advance salary to pay off debt with your advance salary but still, you struggle to come out of debt.
This type of life includes a lot of financial stress. You feel like you will not be having financial freedom in your life. So do not walk on the path of debts that closes all the doors of financial freedom.
You can Lead a Happy Life in Australia by Being Debt-Free
Debt-free life means a very peaceful life without any financial stress. But if you are carrying too much debt already then now your main goal should be to come out of debt.
Do not take any new loans. And increase your monthly income so that you can pay off your debt quickly.
Prepare a strategy to pay off your excessive debt
If at all you want to be debt-free soon, prepare a kickass strategy to pay off debt. You should focus on saving more money as well as meaning more money. There are many opportunities to earn extra money.
Also, you can use mobile apps that help you to save extra money during shopping. In this way, you can save extra and pay off your debt.
So always consider these 18 important things while thinking about how much debt is too much in Australia. I say- it is always better not to get trapped into too much debt.