Veda Debt Study: 750,000 Australians at risk of falling into a debt spiral in an economic downturn
17 May 2012
- Survey finds a quarter of people already struggling will borrow yet more credit
- Queensland and South Australia under most stress
- Few who struggle seek professional advice
Around 750,000 Australian consumers risk falling into a debt spiral if the country experiences an economic downturn, according to Veda's bi-annual Australian Debt Study released today.
Findings show that 21% of Australians are struggling to pay their current credit commitments. Despite this, a quarter also admitted they will apply for yet more credit to help them cope with an economic downturn.
Veda's analysis of consumer behaviours if there is a period of economic stress shows:
- Most (66%) Australians would draw on household savings;
- One in four (25%) would increase their credit card limit, mortgage or loan;
- One in three, or almost 5.5 million, would borrow from family;
- Over 3.6 million (21%) would draw on their superannuation.
The findings come as the Government prepares to introduce long awaited legislation allowing for better information on consumer credit reports, as recommended by the Australian Law Reform Commission in 2008.
Veda's Matthew Strassberg says "Credit reports do not show a person's credit limit, or if they are failing to make the minimum payment on their credit cards or loans. It makes it easier for someone already in trouble to get yet more credit - pushing further into a downward debt spiral.
More worryingly, if a consumer does default, the black mark stays on a credit report for five years, with no other information to show if they are back on their feet.
However, the changes to credit reporting will make credit reports fairer and more accurate for consumers looking to borrow. The new information will include a person's current credit limit, number of credit cards and if someone has failed to make the minimum payment on a credit card or loan on time."
People can download their current credit file to check their details are up to date by downloading a free copy from www.mycreditfile.com.au.
Veda's analysis also highlights differences in debt stress across the states. Findings show Queenslanders (43%) and South Australians (50%) are experiencing the most strain in meeting repayments and Western Australia the least (34%).
Veda's findings indicate that the overall number of Australians already having difficulty paying their debts as they fall due remains high, with that just over half (57%) of the population feeling their debt is within their budget.
The numbers of Australians experiencing financial stress has risen since 2007 when the Veda Australian Debt Study began.
Veda's analysis indicates that despite 21% of the population saying they are having difficulty coping or are unsure how they will make the next payment, only one in five had sought professional financial counselling:
- Those most likely to seek advice (28%) were those earning more than $70K;
- White collar (30%) were twice as likely as blue collar (14%) to seek help;
- Gen Y was much more likely (28%) than those age 50+ (19%) to seek advice.
The results remain relatively unchanged since March 2008 (22% in March 2012 v 20% in March 2008). This is despite growing consumer anxiety about the ability to meet credit repayments.
Mr Strassberg added: "People having trouble repaying should seek help from a financial professional before it's too late, particularly lower income earners with competing debt repayments."