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Although higher house prices top the list for why Gen Y are struggling to buy, according to new research there is another reason.

According research from finder.com.au, the average young homebuyer already has an average debt amount of $30,000. This is a huge amount of debt and with credit cards and personal loans having notoriously high interest rates, these Gen Yers will be spending a significant amount of money just on interest.

Also, as most Gen Yers are on less income during the earlier years of their careers, compared to Gen X and Baby Boomers, it means their borrowing power will possibly be lower too.

Take a look at the table below to see how the average debt can affect each generation.

Home buyer Average debt Reduction on borrowing power
Generation Y $29,191 $97,000
Generation X $36,821 $121,000
Baby Boomer $41,472 $129,000
Source: Finder.com.au analysis and survey conducted by pureprofile

According to Mortgage Choice chief executive, John Flavall, lenders focus on the disposable income, which is determined after all the debt has been accounted for.

“Younger borrowers tend to take on a lot of debt, including personal loans, credit cards, car loans [and] HECS debt,” Mr Flavell said.

“All of this debt serves to reduce their level of disposable income and, in turn, their borrowing capacity.”

Do it yourself

Want to get an idea about how much you could borrow with your current financial situation? Take a look at our How much can I borrow calculator.

With Australia becoming a cashless society, the reliance on credit cards may become worse. So how can Gen Y Australians better organise their finances and avoid ending up with thousands of dollars of debt before they are 30?

“Younger borrowers tend to take on a lot of debt, including personal loans, credit cards, car loans [and] HECS debt. All of this debt serves to reduce their level of disposable income and, in turn, their borrowing capacity.”

John Flavall, Mortgage Choice chief executive

Top tips to avoid debt

  • Plan before moving out of home: Many Gen Yers don’t realise the real cost of living out of home. So, before you take that leap and move out, plan ahead. You may be able to afford the initial purchases such as a bed and TV, but what about the ongoing costs such as rent/mortgage repayments, food, utility bills? There are so many items you may take for granted when living at home and you won’t realise how much they will all add up to until you’re faced with paying for these yourself.

Quick Tip

Speak with your parents about what the ongoing costs are for them and then budget for what you may expect to pay.

  • Choose a debit card: If you want the convenience of using a card to pay for things, opt for a debit card over a credit card. A debit card can be used just like a credit card, but instead of ‘borrowing’ the money on credit, you are using your own money. This way you can only spend what you have.

  • Take advantage of online deals: You don’t have to become a hermit in order to save money. There are a number of websites that offer entertainment, restaurants and flight deals for a fraction of the price. Some good examples include:

    • Living Social: This website provides deals on restaurants, health & beauty, home & garden, events, fashion, gifts and more. Check out the website here.
    • Skyscanner: Compare a number of different airlines to find the cheapest flight and holiday packages. Check out the website here.
    • Our Deal: This website is similar to Living Social in that it also provides deals on restaurants, events, entertainment etc. Check out the website here.

  • Prioritise Savings: You may not think you can afford to put money away for savings, however, even the smallest amounts can add up over time. One of the best things you can do is the moment your pay goes into your bank account, immediately deposit an amount into your savings account. Many financial institutions offer high interest savings accounts, so these weekly/monthly deposits will help your savings grow.

Read more

Saving for a deposit while renting can be difficult to manage, but possible. Check out our blog Top 6 tips to save for a deposit while renting for some ideas.

Our Lending Specialists can also work with you one-on-one to help you get into your own home sooner. Give our friendly team a call today on 13 72 62 or leave your details here and they will give you a call.