Big debt is fine – just don’t make it personal
Australian government debt is on track to reach $1 trillion by June 2025 (around $37,000 per person), according to research by MyState Bank. Most people seem to be comfortable with the sizeable amount, which represents almost a third of superannuation assets.
According to the research, 74% of us are okay with the debt if it is used for job creation, aged care and mental health. However, 62% are concerned about high personal debt.
According to Heather McGovern, MyState’s general manager of customer experience, given the record low interest rates that support this borrowing, Australians understand how debt can be harnessed for economic good.
“The fact that most Australians are comfortable with government debt increasing to support economic growth as we emerge from the pandemic shows that we have a mature, rational understanding of the economic climate. Australians recognise these are unprecedented times and the government needs to be doing everything it can to keep people in jobs while also supporting key initiatives such as aged care and mental health.”
However, it’s a different story when it comes to personal debt. “If Covid has taught us anything, it is that things can change quickly, and having your finances in order remains prudent in these times,” says McGovern. “What started out as a health crisis has been felt in hip pockets across the country, and while lockdown measures have helped some Australians into a better financial position, for others it has left gaping holes in their income.”
While it’s not ideal for people to take on too much debt during uncertain times, Tony Sandercock, a financial adviser at WeTalkMoney, based on Queensland’s Sunshine Coast, says many people feel they have no option. “It’s important to be mindful of the type and level of debt. It can end up costing plenty in the long run if you don’t play your cards right. I hope people consider the alternatives first, which include managing cash flow, tightening the belt, trimming lifestyle or refinancing debt to a lower interest rate if that’s possible.”
He says if people do need to use debt, they should cut the costs, and look at other ways to reduce spending, such as changing mobile provider and cutting subscriptions. “Even small savings now can have a big benefit down the track.”