New Research: Some Australians Vulnerable to Mounting Debt

Veda Advantage’s* bi-annual independent data reveals while most Australians have weathered the tougher economic conditions well, some Australians are struggling with financial obligations and may become caught in long-term debt.

The Australian Debt Study Report by Galaxy Research found 16% of Australians are having difficulty repaying debts and 21% of those who are likely to apply for credit over the next six months say they are currently having difficulty paying debts.

Furthermore, almost 23% of respondents struggling to repay bills owe more than they did 12 months ago.

While the majority of Australian families are managing credit responsibly and continue to pay down debt obligations, a small, but sizeable population of Australians are struggling – creating a debt divide.  Veda Advantage General Manager Market and Product
Development Russell Evans says under current laws this group can be invisible until it’s too late.  Urgent government action to add comprehensive credit reporting to the government’s credit reforms is needed.

Helping lenders prevent these families falling into a debt trap should be a high priority. But government legislation to allow lenders to see when a borrower is overcommitted is facing continued delays.

Legislation to implement comprehensive credit reporting, an early warning system for borrowers and lenders has still not been drafted despite government committing to legislation within 18 months of August 2008.

Veda Advantage’s report indicates:

• More than one in ten (12%) of Australians have missed a required minimum payment in the past three months, with many missing two or more essential household payments.  Of the people likely to apply for more credit one in five (18%) have missed a bill payment in the last three months.

• Of those Australians with a mortgage, 13% were late paying a household bill in the past three months. One in three respondents is concerned interest or mortgage rates will impact on their ability to repay debts during the next twelve months.

• Mortgage holders aged between 25 – 49 years are three times more likely to miss a payment than those over 50 years. Mortgage holders were most likely to miss a telephone or internet bill, followed by a mobile phone bill, credit card, utilities and personal loan repayment.

• More than 20% of Australians currently struggling, are likely to apply for more credit in the next 12 months.

• Although Australians experiencing financial difficulty aspire to pay off their credit cards, one in five is likely to apply for new credit in the next 12 months.

• Australian part-time workers are more likely than full-time workers to apply for new credit to consolidate existing debts.

• Australians currently finding it difficult to repay bills are more likely to have children and are more likely not to be working, or working on low incomes.

• Australians living in regional areas are worse off than their city counterparts.

Russell Evans, Veda Advantage General Manager Market and Product Development, said it is concerning to see a significant number of Australians are likely to apply for credit despite struggling to meet current financial obligations.  

“Credit providers simply don’t have all the tools they need to implement new responsible lending laws, making it difficult for them to detect some struggling individuals.

“Sixteen percent of Australians with debt are finding it difficult to make their payments.  This indicates some of these people are in a high risk category, and may seek to take on more debt despite not meeting current financial obligations.  There is a real risk these vulnerable individuals will become caught in debt.  

“The Federal Government is to be congratulated for implementing new responsible lending laws  , but needs to give credit providers the tools they need now.”

“A simple change to the credit reporting laws will allow credit providers to check a borrower’s current credit commitments and repayment history before additional credit is granted. This would protect families from taking on more debt at a time when they need assistance to help them out of debt.  

“The Government’s responsible lending legislation, which should pass by the end of the year, is a first step in the right direction to help these Australians. However it won’t be enough. Without access to more transparent information, lenders will struggle to identify families and individuals who are in financial difficulty.

“The Government’s current timetable means this comprehensive credit reporting may not pass for 18 – 24 months – too late to help protect these vulnerable Australian families.

“Australia needs to adopt a comprehensive reporting system.  There is a window of opportunity to introduce this change, however this requires swift action,” Mr Evans said.