Australian debt levels seem to be cooling down compared to previous years and Australians owe significantly less than they did a year ago. There are several reasons why debt levels in Australia have been decreasing over this time, leaving the average Australian with less debt than they had in 2008 and 2009.

In our analysis mortgages are excluded, because they apply to over one third of the population. This look at Australian debt levels mainly concentrates on personal loans, credit card debt and other types of personal debt finance. So what has caused this apparent reduction in debt and how can these changes in consumer behaviour be accounted for?

As economies around the world recover from the economic turmoil of recent years, it seems that financial uncertainty in global markets has caused consumers to be more cautious and change not only their buying habits, but also their attitudes to debt. There are several ways in which behavioural changes have led to these personal debt reductions in Australia:

  • Consumers have been delaying larges purchases such as cars and home improvements.
  • Media coverage of international financial troubles has caused many people to reconsider their own financial situations, perhaps being more careful in their spending.
  • Many people have been choosing to actively repay their debt and reduce their own personal debt levels.

However one of the biggest restrictions on debt levels amongst Australians has been the tightening of credit by banks and other financial institutions. As the wholesale credit markets tightened with the global financial crisis, banks became much more prudent in their lending policies. The result of these increased restrictions on credit availability and lending meant that an many people were unable to find affordable sources of credit, and in some cases restrictions on borrowing levels and high interest rates made using credit facilities an unattractive option.

Meanwhile it also appears that credit cards have been absorbing a lot of small purchases and the daily expenses of many Australians. Credit card debt has increased 2.3% compared to just 12 months ago. Although credit cards provide a convenient and fast way to make payments, consumers need to exercise caution and ensure that their small but frequent credit card expenses do not accumulate and create a more serious debt which may be a struggle to repay. After all, debt is a great tool to keep our finances in order, but only when it can be paid back.

The overall decrease we have noted in Australian debt levels is mainly a symptom of the economic woes which have plagued the world economy in recent times. It seems likely that debt levels could rebound with the continued recovery of economic growth and increasing consumer confidence around the world. However, it is still important to remember that debt always has to be paid off eventually.