Financial stress on the rise – what can you do about it?

More Australians may be turning to credit cards to help manage their household expenses, according to a new report. With the cost of living putting pressure on many budgets, what can you do to better manage your credit?

According to the March 2024 Quarterly Consumer Credit Insights report from credit bureau Equifax, signs of financial stress amongst Australians are accelerating, with demand for credit cards climbing and arrears increasing across several credit types.

Fewer personal loans and BNPL, but more credit cards

While the report found that unsecured credit demand fell by 3.5% compared to the March 2023 quarter, given a 4.6% decline in personal loan applications and a 24.7% decline in buy now pay later (BNPL) applications, credit card applications increased by 13.2%.

Equifax advisory and solutions general manager, Kevin James, said that many Australians are seeking unsecured credit to relieve cost of living pressures. This was also shown by 29% growth in credit card limits, which Mr James said indicated that Australians are applying for more money on their cards.

Additionally, Mr James said that more Australians were behind on their personal loan repayments:

“While demand for personal loans has dropped, arrears in this portfolio are rising. In fact, personal loan arrears of more than 30 days past due have hit their highest point since 2020. And we expect this trend to continue - personal loan arrears tend to peak in Q2, as festive season spending becomes due. Taken together, these trends across credit cards and personal loans paint a picture of growing financial strain for consumers.”

The Reserve Bank of Australia (RBA) has also been keeping an eye on Australia’s outstanding credit card debts. The RBA’s February 2024 data shows that the total credit card bill attracting interest on personal credit cards is now $17.61 billion. This would be costing an estimated $8.8 million per day in interest charges, assuming an average credit card interest rate of 18.34%. This could also indicate that an increasing number of households are struggling to get on top of their debt in 2024.

Fewer mortgages, more car loans

The report also looked at demand for secured credit, such as mortgages and secured car loans. This was found to be 2.8% down year on year, thanks to a 4.5% decline in mortgage applications, offset by a 4.7% increase in auto loan applications.

Mr James said that with many Australians having already refinanced in the face of the fixed rate mortgage cliff, demand for new loans has dropped off. However, average mortgage loan limits and arrears were found to be continuing to rise:

“While mortgage demand has declined, the average limit per new mortgage account continued to grow at a consistent pace of 7% year-on-year - reflecting increasing house prices. Additionally, we’ve seen higher mortgage stress this quarter despite stable interest rates; mortgage arrears increased across all categories. Arrears of 30-89 days past due increased 15% year-on-year, while arrears of 90+ days past due were up 17%.”

How can you manage financial stress?

If you can find ways to manage your debts and personal finances rather than missing repayments and defaulting on your loans, you may be able to minimise the risk to your credit score. This could help to keep you from ending up in more financial stress further down the road, as a bad credit could make it harder to borrow more money in the future.

There are several different strategies available to Australians who are experiencing financial stress. The best option for you may depend on your exact circumstances and the goals you want to achieve.

Some of the potential options include:

• Switching to lower repayments such as interest only
• Cutting expenses where possible
• Using technology to automate repayments and/or deposits into savings or investments
• Asking for a better deal, whether by negotiating with your current lender or switching a new one
• Consolidating debts and/or transferring balances

You could also consider contacting your bank and/or credit provider to enter a financial hardship arrangement, or contact the National Debt Helpline to get in touch with a financial counsellor.

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