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Do I have too much debt?

Do you know how if I have too much debt? It’s not by looking at your bank account; it’s by looking at the level of stress it puts on you...

While some people may actually be in too much debt and not stressing about it, the majority of people find that the more debt they are in the higher their stress levels are.

There are different kinds of debt, and usually those that would be considered wealthy actually have the most debt. The difference is this debt usually produces an income in return and has capital appreciation. It will also be part of a much larger mix of assets that are liquid (meaning you can sell them for cash quickly).

Many people in Australia are in too much debt that is placed at a much higher risk. That is most of it is tied up in mortgages for homes they live in, with capital appreciation being a long term gain and no short term cash flow. Add big mortgages to credit card debt on high interest rates, and you find people with stress levels that don’t go down, simply because there is a constant juggle to stay afloat. If you're struggling with debt, ask yourself these questions:

How much debt you are in?

To get a true picture of your situation, you need to calculate all your debt and be real about it. Understand your position and the assets you have versus your liabilities (debts) so you have an honest financial view of yourself. Only by doing this work can you know what to change. Reality is often frightening, but many people don’t even know how much debt they are in let alone have a plan to pay it down. In this case, ignorance is not bliss. Knowledge is power.

Are your credit cards hurting you?

If you are constantly making credit card and bill payments, and then just paying the minimums to keep afloat, you are no doubt feeling a lot of stress. Credit cards need to be consolidated into one loan or card at a lower interest rate, so an intense focus can go into paying more than the minimum to pay them back. And don’t spend anything else on them until the balance is zero, or you are confident you can pay them off monthly to zero.

Is your mortgage too big?

What is too much debt, outside of feeling stressed? If your mortgage or rent is nearing half your income, most likely that’s putting you under financial pressure. Having your mortgage representing about 25% of your income, maximum 35% of your overall income every month can be managed. Any more than that and debt stress can creep in.

Do you have savings buffer?

If you are in too much debt, chances are you have not had a chance to stash away a rainy day fund. Ideally this would be up to four months of expenses. For some people, that’s impossible - but even a small savings pool to cover unexpected emergencies can help you sleep at night. No safety net equals more stress.

Do you earn enough to pay off your debt?

If not, you need to get a side hustle. Use the gig economy to your advantage and make extra cash to get rid of the debt. Or you could sell assets to make money to pay them down. What don’t you need - put toward debt that’s dragging you down. Be inventive and be ready to hustle.

These questions are only part of a bigger picture, to get your financial future sorted. Its near impossible to build a long term wealth plan if you are struggling under insurmountable debt. You owe it to yourself to figure out ways to freedom - even it means selling your dream home, moving somewhere more affordable, or saying no to new cars, clothes and holidays. Because while those things might feel good in the short term, in the long term the financial pressure takes all the joy from your life. And as you know, life is short.

Don’t spend it under a debt cloud call us on 1300 861 143 to work with you to resolve your situation.


This information is current as at 27/06/18. This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

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