Make Sure You're Counting All Your Debts

DebtDrowning.jpg For anyone trying to get their finances under control, identifying and then eliminating debts is a vital task. But are we always rigorous enough when we make that assessment?

I found myself going down this train of thought after checking out the latest quarterly figures from the Melbourne Institute on household savings and investments. Like the previous quarter's survey, the latest results show that Australians have a wide variety of goals when it comes to saving money. The three most popular choices for savings motivation are putting money aside for a rainy day, saving for travel, and paying off debt.

As I pointed out last time, the last category doesn't really qualify as saving: if you've got money to put towards debt, it nearly always makes more sense to put it immediately towards that debt, not stash it for some future repayment.

But that's not the only area where we seem to take a hazy view of debt. According to the latest figures, 46% of Australians said that they didn't have debt. At first glance, that might seem like an astoundingly large figure.

Partly, the issue is methodology. The Melbourne Institute survey separates mortgages from other forms of debt, so that 46% doesn't include the close on 37% of us who do have a mortgage. And that's fair enough up to a point — if you're not paying a mortgage, you'd probably be paying rent, and you wouldn't count the latter as debt.

However, looking at it this way creates a false sense of security, since there's no correlation drawn between how well you're dealing with those different kinds of debt. If you want to solve your finance problems, you firstly have to identify them.

And the general conclusion from these numbers seems to be that we're not rushing to solve that problem. Almost 65% of households say that less than 10% of their after-tax income goes to servicing debt. At that rate, it certainly isn't going to run down in a hurry.

If credit card debt is your major problem (and according to the survey, around a third of Australians identified have credit card debt), there are plenty of tools you can use to cut down costs. Comparison search engines like Fumzup and Mozo can help you locate a better deal, with lower interest rates or other benefits. To avoid getting saddled with debt that isn't yours, check out our guidelines on avoiding credit card fraud. And while ditching credit cards can help control debt, bear in mind that carrying a spare can be useful when you travel.

Lifehacker's weekly Loaded column looks at better ways to manage (and stop worrying about) your money.


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