1) Is too much bad for you? Yes that's what too much means.
2) There's good time for borrowing, a bad time for borrowing but there is never ever ever a bad time for paying debt off.
That's the bleeding obvious that's over looked, forgotten or obscured when the market is artificially distorted...such is the case now.
Interest rates have been going down and then frozen for a very long time. Here's an explanatory chart and although you'll see there has been a few spikes since 1989, it has as a trend line been declining since 1989. So what's normal? Well its always going to vary, there is no set normal. There's many influences on the economy and interest rates is only one of them, but the effects of interest rates on the average Australian is probably one of the most prominent.
1989's 17% was not what should be normal but it was what it was and if you had a mortgage then, or a loan as a business some of you were paying 25%. It had to go to that mad extreme but it wasn't sustainable, something had to give. Many did go broke.
If you think the current interest rates are the "new norm" you are very much mistaken and possibly in financial peril as interest rates rise. And they will rise.Whilst we can & have intervened and stall the changes, these artificial stall points are temporary and the longer we stall the changes the worse the transition will be.
At present many people are already suffering mortgage stress and default.
If we get 4 interest rate rises in a row then many economists will claim its the economy growing and in some respects that's right & wrong. They will remain very positive through those first four rises (when they do come) even though its going to wipe some borrowers out, push some close to default & possible bankruptcy.
If your loan cannot survive a 3% rise in interest rates then your loan is probably unsustainable even though you're not in default now. If interest rates rise soon, they will probably only rise .25% in a month. Now when they last dropped banks were very reluctant to pass on savings to lenders. Now when they rise, you can expect them to be passed on in full, probably plus some. They'll be passed on not just swiftly, more likely immediately.
Right now there has never ever been a better time to pay off debt.
Be mindful, interest rates do influence the housing market prices and as interest rates do rise, the housing sales/prices will stall then fall reducing people's equity in their home or investment property and making their loan more unsustainable.
People will either personally know, or know of others that were offered more cheap lending as property prices grew in recent years. As property prices grew banks realised that people's equity grew so more debt could be sold to them...or in other words, more product sold to consumers.
It was fine over the short term but over the long term unsustainable & artificial. It may well curve back sometime soon. Sooner than we think and not doubt harder than we think.
And here we sit, peril is on its way and like every other bubble we've seen before many will be caught unawares. Totally unaware and afterwards many economists caught unaware will say they read the signs before but no one listened.
We've seen busts before and its often come a year or two after the first smart people send up the warning flares. The really smart money will be paying off and/or converting some of it into cash.
So if you have big debt will it survive interest rises?
If it can't survive a rise of 3% now then its definitely time to get your equity up as fast as you possibly can so the bigger rises will be survivable.
It is the problem that people complain that young people's literacy and numeracy is not what it should be, but doing sums is just one part. We rarely see financial literacy taught in schools.
If we're to future proof the nation going forward we have to have greater financial literacy so those least likely to afford losses can avoid them.
The next financial wave is coming. Spot & pick your 5 favourite economists you see on social media or in the media, find their comments on the economy's state of health...and screen shot it.
It'll make a heck of a travelling picture over an extended period leading up to the upcoming "correction"
Interest rates have been manipulated by the reserve bank for good reasons, but holding them down has had the negative side effect that the housing market has been largely distorted into higher unsustainable prices.
In Sydney the stories are rife that investors dominant the housing market and people who want to actually just buy & live in their own home cannot compete.
Nothing stays the same, except the same old changes & the timing of the changes and the severity.
Now is the time to consolidate and position yourself financially in a better place for the impending thud.
There has never been a better time to pay off debt.
The banks won't like it, but your job is to best position yourself, not subsidise banks.
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