Living cost crunch causes credit stress as more people fall behind

Money stress, mortgage arrears and credit card pain have climbed as households crack under the strain of two years of rising costs.

The painful impact of high inflation and interest rates is intensifying as new research and statistics paint a grim picture of households struggling to keep up with climbing costs.

A new report by finance marketplace Compare Club says four out of five Australians are suffering high levels of bill stress, while separate statistics released this month by the Reserve Bank of Australia and banking regulator APRA highlight how debt pressures are rising.

As the RBA prepares to hand down its interest rate decision on Tuesday afternoon, Compare Club’s new Bill Stress Index says more than half of the nation’s consumers are being forced to cut back on essentials, while the use of buy now pay later products has jumped 28 per cent among late bill-payers.

“It doesn’t seem like there will be relief any time soon,” Compare Club head of research Kate Browne said.

“The fact that so many young Australians are turning to BNPL services and personal loans to afford basic necessities is a worrying sign of their financial strain,” she said.

It’s not only low-income households that are struggling. Ms Browne said Compare Club was seeing people earning incomes above $200,000 “really stressed out too”.

“It sounds like ‘get your violin out’, but if you have got a massive mortgage that’s not a lot of money,” she said.

Compare Club’s Kate Browne says even high income earners feel the strain. Picture: Supplied

“If they’re in stress, that speaks volumes about where everyone else is at.”

Ms Browne said pain was rising now because many people had built cash buffers through Covid and had enjoyed ultra-low fixed-rate mortgages.

“People are now running out of the fat that they had in their budgets,” she said.

Meanwhile, Reserve Bank figures out this month show that credit card debt attracting interest has climbed for five months in a row and has jumped $405m since November.

The outstanding amount now sits at $17bn. Based on the average credit card interest rate of 18.3 cent, that equates to a $3.2bn annual interest bill for struggling households.

RateCity research director Sally Tindall said low-cost lockdown living during the pandemic helped many people build savings and this was a key reason why some were “only just hitting capacity now, two years on”.

“While money in savings accounts and mortgage offset accounts continues to rise, so does our total credit card debt, and the numbers of mortgages in arrears, as a rising number of Australians fall into severe financial distress,” she said.

The latest APRA statistics last week showed overdue mortgages have almost doubled in the past 18 months.

\RateCity’s Sally Tindall says seek help if suffering financially. Picture: Tim Hunter.

APRA says the value of loans 30-89 days past due has climbed for six consecutive quarters, up from 0.34 per cent of all mortgages in the September 2022 quarter to 0.66 per cent in the latest March quarter.

Ms Tindall said total non-performing home loans were now 0.95 per cent of all mortgages and should continue climbing.

“While this is still relatively low, particularly considering the dramatic rise in mortgage rates over the last two years, it is now above what it was in the year before Covid, with little sign of turning around,” she said.

“It will continue to be an incredibly tough 2024 for many households, and while 2025 may deliver cash rate relief, it’s still too early to say exactly when it will come.”

Ms Tindall said the National Debt Helpline should be “one of the first ports of call” for people struggling with debt.

Originally published as Living cost crunch causes credit stress as more people fall behind