The perfect debt storm: What is it and what can we do to protect ourselves?

Rising quickly from the ashes of the chaos, disruption, fear, and uncertainty caused by Covid-19 and the threat of WW3, comes massive financial concerns. Combined the can create the perfect debt storm.


When the pandemic hit, many of us went into damage control.


Asking questions that had no foreseeable answers, doing thousands of head miles trying to work out the answers to questions there were no answer for, like…


• How long will this all last?

• What if I lose my job and can’t pay my bills?

• I was barely making ends meet before the pandemic hit – how will I survive and be able to feed my family?


This understandably made many extremely anxious, stressed, fearful and depressed.


We all watched on as the government, financial institutions and employers scrambled to try and mitigate the fears and concerns of its people.


Having to act fast …


The Government issued


o Grants, top up payments, employee/employer incentives, tax breaks

o Early release super was encouraged – without educating people on the true cost of taking their money out early or monitoring where the money was spent.

o ATO stopped chasing monies owing to them, giving people a break from payment

o Businesses already on the brink prior to the pandemic, were given all kinds of lifelines, in the form of loans, grants and employee incentives – often propping them up and creating a false reality.


All this costing taxpayers billions and has left the country in a massive deficit.



The Banks response to the pandemic was as follows


o Applying deferral of payments on mortgages, loans and credit cards, without for the most part giving their clients the true understanding of what the ‘deferral of payments’ would mean to them long term, often putting people in arrears on their debts, increasing the balance owing and ultimately putting many in a worse situation.


o Giving loans to businesses, with a promise of delayed payment, (while interest accumulated in the background) that otherwise might not have qualified.


o Interest rates dropped to an all-time low – while Property prices skyrocketed creating a false economy for many who for the first time ever, with low interest rates and government incentives, coupled with access to their superannuation were able to get into the property market and get themselves a mortgage. Many so excited by the prospect that they may not have considered what their loan repayments would become when interest rates rise up. As stated in this article about the possible fall out on the ABC website early May 2022.


Then there are all the other things we had to deal with and process

  • Global shut down

  • Loss of job

  • Mandates putting people in undesirable situations, many forced to make an impossible choice

  • Unemployment dropped and set to worsen

  • Loss of income

  • Many let go, mandates forced people to leave their jobs if they didn’t comply shifts cut or working conditions changed and they are no longer able to work as they once could

  • Loss of loved ones

  • Supply and demand issues

  • Inflation and the cost of living out of control

  • Petrol prices higher than anyone could have imagined

  • Mental health at an all-time high


All this in the last 2 years. Not to mention what we have all had to endure personally outside of all of this.


The fall out becoming clearer with everyday that passes as we brace ourselves for…


‘The perfect ‘Debt’ storm’


There’s no wonder people are on edge, worried and unclear what the future holds!


So much uncertainty and overwhelm it is often hard to know where to start and what to do to protect ourselves from being swept away as the debt storm gains momentum with so many in its direct path.


It is time to batten down the hatches and prepare as best we can to weather the imminent debt storm.



Here are 5 things you can do financially to prepare


Know your numbers


• If you have a mortgage and can't afford a rate rise – then you need to make some serious changes immediately!

• Tell your money where to go before it disappears. There are some great budgeting apps and some banks now break down your spending so you can track it. I run all my personal expenses through Up Bank so I can see what is coming up, when direct debits will be processed and can see my monthly spend in every area of my life.

• Know what your debts are costing you. If you are simply paying off interest, fees and charges monthly and are already struggling to make ends meet, acknowledge that you are not going to break this cycle unless something dramatic shifts! If this is you, you are likely suffering unnecessarily. Reach out to services like National Debt Helpline or Debt Angel Services and ask for a helping hand.


Increase your monthly payments


Increase your monthly repayments to minimise interest, if you are not able to do this then I invite you to consider you are likely standing in quicksand and if you don’t improve the situation soon you might go under.


Mortgages

Know your mortgage terms, refinance to a better rate be prepared for rate rises. If you are on a fixed rate, know when it expires and 6 months before it does, start paying the equivalent to what the rate may rise to.


Credit Cards

If you are only paying the minimum payment ($38) off your credit card (15% interest) on a $3k balance (never spending another cent on it) it will take you 29 years to pay off and cost you over $10k in interest. If you up the payment by $20 a month it will take you 7 years and cost you just under $2k in interest.


Get savvy with your spending


Get cashback /coupon apps, learn to budget and bulk buy things you use daily when they are on sale to save money.


Sell stuff


Sell things you no longer need or want, use the money you make to pay down your debts.


Communicate


Ask for a helping hand if you are feeling the pinch, are concerned, overwhelmed or feeling anxious or scared about your financial situation.


No good comes from suffering in silence, shit happens, life is messy… it is how you deal with it that makes all the difference.



The perfect debt storm: Final words


Everybody is under huge amount of pressure – apply these tips above and if you want to have a chat with me about your debt situation feel free to reach out for a free consultation call.


“The best time to plant a tree is 20 years ago. The next best time is today


There is no point being upset about things that happened in the past that have got you to where you are today. You cant change the past but you can transform your future


The time to act is now!

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