Why Some Economists Are Calling For Higher Wages To Reduce Australian Debt

Some economists have suggested that the current rate of household debt in Australia is 100% of the GDP. In ordinary terms, that means statistically, every Australian household has a certain level of domestic debt. This debt ranges from mortgages and car loans to credit cards and student loans. These loans have the potential to become unmanageable.

Because of the volume of debt, mass defaulting can cause an insurmountable economic crisis. The nature of economic crisis can be difficult for the ordinary person to understand, but it is primarily driven by interest rates and cash flow. When lending rates are low, a lot of people take loans. They assume they’ll have a way to keep up with their repayments.

There are two other ways that debt sneaks up on you. College and university students sometimes take loans to get through their course. They need cash to pay their tuition fees, buy books, or rent learning materials. Sometimes, the loans help to supplement their living costs. This becomes necessary because students can only work a few hours as they study.

Many students take loans because they think once they graduate, they’ll get jobs and quickly pay it off. However, once they’re in the job market, things change. They may not earn as much as they thought they would. Or they may have a comfortable living, but they somehow neglect their loan. It may not be deliberate; it could be a genuine oversight.

It’s easy for a small loan to slip your mind because you have bigger expenses. However, the longer you wait before paying it back, the higher interest rises. Sometimes, the interest rates end up being higher than the loan itself. At that point, the loan becomes virtually impossible to keep up with. The school may end up requiring a debt collection agency to recover funds.

Credit card debt piles up similarly. The way credit cards are set up; you can use them to pay for goods and services. It can be easy for consumers to overspend because all they have to do is swipe their card. They might not know how much money they have used. The trick with credit cards is the high-interest rate.

If you pay the card back within the required period, there will be minimal charges. But as long as it stretches beyond the stipulated time, the rates start to rise. Once they start going up, they soon get out of hand. Your credit card debt affects your credit score, and this makes it harder to get other forms of financial support.

A lot of people don’t consider credit cards as part of their debt. But literally speaking, whenever you swipe your card, you’re using cash that you don’t have on you. It’s often cash you don’t have in your bank account either. So you’re borrowing money from the bank and using it to pay for your purchase. You will be expected to pay the bank later.

The reason so many people get into credit card debt is that it’s ridiculously easy to get a card. It’s common to get a card in the mail even if you didn’t ask for one. And once you start using them, you soon get used to the pleasure and ease of swiping. The bills gradually pile up as you stretch your credit levels.

Once you reach a certain level, it’s easy to sink under the burden of debt. With 100% of households facing some kind of debt, the average Australian is always one pay cheque away from bankruptcy. This puts the entire economy at risk because if every household defaults, it will affect the movement of cash within the country and can crush all sorts of businesses.

For many Australians, their jobs are the only way they make money. They don’t have access to inheritance or passive forms of income. That’s why economists believe it would be a good idea to raise the average wage. If citizens earn more money, it would be easier for them to repay their debts, and less likely to default.

However, the rise in wage would have to go with a change in behaviour. For some people, having more disposable income would invite them to hike their spending, especially on their credit cards. But from an overall perspective, having more access to cash means having an easier time paying your debts.

On the other side of the equation, when your debtors begin to avoid you, it may be time to get some professional help. In the old days, it might help to hire a goon and have them pursue the debt on your behalf. Nowadays, debt collection is an entirely different industry.

It’s regulated by the Australian Securities & Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC). These institutions protect debtors from harassment by debt collectors. As a business, it’s best to get a reliable debt collector that abides by legal requirements. This makes life easier for everyone.