When the Reserve Bank of Australia raises interest rates, it’s big news.

For the fifth time in a row, the RBA announced on Tuesday an increase to the official cash interest rate by 0.5% to help fight inflation and keep price growth under control. The 2.25% in interest rate increases since May are the RBA’s sharpest rate rises since 1994.

Why are interest rates rising so rapidly?

After a few decades of relatively stable inflation, consumer prices have been sharply increasing in 2022. A year ago, the Reserve Bank of Australia was forecasting that inflation for 2022 would be around 1.75%.

The latest Australian Bureau of Statistics (ABS) CPI figures reported that the annual Australian inflation rate is 6.1%, which is the highest recorded since 1990. Now, Australians are facing the prospect of CPI inflation reaching a peak of 7.75%, or more.

This is a very big forecasting miss. Even according to Philip Lowe, RBA Governor at the Inflation and the Monetary Policy Framework speech on 8th September 2022:

Forecast misses of this scale should lead to soul-searching by forecasters and they certainly have at the RBA. It is important that we learn from this and improve our understanding of the inflation process.

The RBA has responded to inflation in the same way as other central banks have around the world: by raising interest rates.

Why is high inflation so bad?

When inflation is high, it eats into household budgets and can lead to higher mortgage repayments and other household debt repayments, which can in turn lead to decreased consumer spending and confidence.

As Philip Lowe put it this week:

High inflation is a scourge. It damages our standard of living, creates additional uncertainty for households and businesses, erodes the value of people’s savings and adds to inequality. And without price stability, it is not possible to achieve a sustained period of low unemployment. It is important, therefore, that this current surge in inflation is only temporary and that we once again return to the 2 to 3 per cent range.

How do interest rates affect inflation?

Inflation is determined by many factors including economic growth, unemployment, wages growth and money supply. To control inflation, the RBA uses monetary policy tools including changing the cash rate –which is what has happened on Tuesday.

Banks borrow money, sometimes from each other, to make loans to consumers and businesses. So when the RBA raises its cash rate, it raises the cost of borrowing for banks that need funds to lend out. Banks naturally pass on these higher costs to consumers and businesses. A rise in interest rates makes borrowing money more expensive and this usually leads to slower economic growth and increased unemployment as companies cut costs by shedding jobs.

When interest rates are lower and more people are borrowing money cheaply, there is a greater supply of money in the economy. When the RBA raises interest rates, it means the money supply circulating will start to decrease.

How high will the RBA raise interest rates to combat inflation?

The short answer; as high as necessary.

The Board expects that further increases in interest rates will be required over the months ahead… But how high interest rates need to go and how quickly we get there will be guided by the incoming data and the evolving outlook for inflation and the labour market.

Inflation is about to be reported monthly

On 26 October 2022, the ABS will commence publication of a monthly CPI indicator.

Until then Australia has been the only member of the G20 leading industrial nations not to provide monthly CPI updates, and one of only two members of the Organisation for Economic Co-operation and Development, the other being New Zealand.

With the RBA meeting monthly, it makes much more sense to release CPI information monthly, rather than the usual 3 month lag.

Watch this space.



“Debt Reduction Plan” is a perfect phrase for a simple reason. There’s one scary word being “debt”, and the other two are motivating unless the “reduction” comes after income and the “plan” comes after “get rid of you”.

Barring those extreme examples, having a debt reduction plan means you have an action plan that will put you on a debt-free journey. There are many debt reduction strategies out there, but we decided to “pick the brains” of the experts on our team and get some beginner debt reduction tips that will help you start your planning.

Calculator with the word "debt" on it and an eraser

What is Debt Reduction?

It sounds like a fundamental question, but it’s a great starting place because debt reduction is more than one thing; it’s a combination of ideas. You can reduce spending, budget, refinance existing debts, diversify income streams, and so much more. There are many debt reduction methods but understanding the core of what you want to do is essential. Talk about it with your family, and you have the starting line to your debt reduction plan.

Debt Reduction Calculator

We have seen many people open up a blank spreadsheet and work out the formulas and formatting to make their debt reduction plan make sense, and it can be a nightmare. Fortunately, we live in a time where if you think of it, some smarty-pants person has already created it online.

One such, or team of, smarty-pants have created this handy debt reduction calculator that allows you to enter all the different forms of debt you may have and see how much you need to pay off each month to get out from under that debt cloud.

We have a mortgage action plan calculator on our website if you are looking for specifically mortgage reduction.

Having these figures from the debt reduction calculator will let you know how much you need to set aside from your earnings, save, or even earn from a side-hustle or second job.

Beware of the small fees

A universal debt reduction tip from all experts is to be very wary of those small fees. They mean that small fees are service fees, credit card fees, or “cup of coffee” purchases such as another television streaming service or digital music /podcast subscription. These small fees can add up to a huge problem and can impact any debt reduction strategies.

It may be time to go through all these “small fee” services and see what can be cut or consolidated.

A highway sign over a sunset that reads "get out of debt"

Debt Reduction Services

We would be remiss if we didn’t bring up this essential service. For starters, it is one of many things that Credit Connection excels at, but also because we want you to know that there is help out there for you if you need it.

Suppose you are looking to become debt-free and live that #lessdebtmorelife lifestyle, then we can also help. A quick Google search can put you in contact with several debt reduction services that can help you with everything from budgeting to refinance. You can get started with us today by clicking here.

Whatever you decide to do to get started on your debt reduction plan is only the first step to a more fabulous and financially secure lifestyle.

Of course, just like with medical articles you might be reading in the middle of the night to self-diagnose that thing (hint: don’t do this), it’s always better to talk about medical and financial matters with an expert to ensure that you are getting the best advice for your particular circumstances.

Remember, you got this!

As more Australians fall behind the rapid pace of the property market, the question on the lips of many Australians is whether they will ever pay off their debts. The number of mature age Australians who still have mortgage debt in retirement is consistently increasing – and on average, each older Australian with a mortgage debt owes much more relative to their income than 25 years ago.

How many Australians will soon be unable to retire comfortably amidst an international retirement savings crisis, compounded by COVID-19 and further economic uncertainty?

A study by the leading professor of economics at Curtin University found that “more Australians are finding it difficult to pay off their mortgage before retirement.”

How Will You Pay Your Mortgage Debt In Retirement?

Nearly 50% of Australian homeowners aged between 55 & 64 are still paying off their home loans.

People now have to work into their late 70’s, just so they can pay their debts off. In addition to this, there is an increasing number of older Australians who facing the reality that they will not pay off their mortgages before retirement. More than half of the Australian retirees are finding it increasingly harder to pay off their mortgages, and are being forced to rely on the senior’s pension.

The average mortgage debt among older Australians has risen by 600% since the late 1980’s.

With more retirees being unable to service monthly mortgage repayments, a larger number of them are forced to rent; getting stuck in poverty, with no way out. A shocking study by the AHURI found that the surge in mortgage debt among older Australians has outstripped growth in asset prices and incomes… meaning that it is becoming more and more difficult to pay off mortgages among all types of incomes.

Debt-free home ownership used to be a pillar of the Australian retirement strategy. It still can be, with the right support and planning.

Less Debt More Life™

You work hard for your money – imagine your peace of mind knowing your money is working hard for you. Our Mortgage Action Plan delivers guaranteed results and allows you to start living the life you deserve.


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