Need to know
- In a recent CHOICE national survey, 94% of households told us their bills had gone up over the past 12 months
- In the 12 months to the end of May 2023, the National Debt Helpline received 56,618 calls – a 29% increase on the previous 12 months
- Many people in financial trouble continue to turn to unregulated credit products such as buy now, pay later
With the cost of living continuing to climb, it's no surprise more people are struggling financially.
It's often not a particular financial calamity that's getting people into trouble in today's economic climate; it's simply the widening gap between what they earn and the cost of food, housing, fuel, electricity and other must-haves.
In March 2023, 94% of households told us they'd seen their bills go up over the past 12 months. It's the highest level of financial stress we've recorded in our last seven years of quarterly Consumer Pulse surveys.
Many of those who are hard-pressed to keep up with price increases may be tempted to access funds through unregulated lenders such as buy now, pay later platforms – a move that can make matters worse.
Others are reaching out for help from qualified financial counsellors who offer free assistance via the National Debt Helpline.
In the 12 months to the end of May 2023, the NDH received 56,618 calls, a 29% increase on the previous 12 months. Visits to the debt problems page of the NDH website are up 22% compared to 2022.
"The issue of rent arrears, in particular, is coming up frequently, as well as people wanting referrals for assistance with energy bills and food costs," says Karen Cox, CEO of the Financial Rights Legal Centre (FRLC), one of organisations that receives NDH calls.
"We have also seen a noticeable increase in the first three or four months of this year of hardship cases for various types of loans. So people are calling us about car loans, credit cards and personal loans," Cox says.
BNPL loans making matters worse
While reforms to the buy now, pay later sector were recently announced that would bring the lending product under the credit act in some circumstances, they won't be of much help to people already in over their heads.
"Quite a few of the people who are calling us are in trouble with buy now, pay later debt," Cox says, adding that she was recently reviewing the chat transcript of a young woman who's in trouble with a car loan from an unregulated lender, "and that's not at all uncommon".
It doesn't take long before that indebtedness catches up with them. And what we see, unfortunately, is people entering into a debt spiralKatia Sanderson, Consumer Action Law Centre
Katia Sanderson, who leads a financial counselling team at the Consumer Action Law Centre (which also receives NDH calls), seconds that point, saying "people are very resourceful, and they've tried all sorts of tricks to keep things afloat. Unfortunately, that sometimes involves people relying on buy now, pay later and wage advance products just to try and stay a little ahead of the game. But it doesn't take long before that indebtedness catches up with them. And what we see, unfortunately, is people entering into a debt spiral."
Free financial counsellors on the National Debt Helpline can often suggest options that many people might not be aware of.
There are other options
Sanderson says the Consumer Action counselling team often advises NDH callers on how to arrange payment priorities and and set up hardship arrangements with creditors. Counsellors also make callers aware of concessions they may not know about.
"In Victoria, for example, some folks have never heard of a utility relief grant, which can see the Victorian government contributing $650 for each utility for eligible people. So there are options out there that some people have never heard of."
One reason for that may be that some callers haven't had to look into such options previously.
"In years gone by, the most common calls we would get on the National Debt Helpline would be from people who are experiencing some kind of life event, such as a separation or illness, job loss, something that's really caused a disruption in their ability to meet their expenses. But quite often we're hearing from people now who are in a full-time job, working significant hours, and are still having difficulty paying for life's essentials."
Avoiding help can backfire
People often seek help from the FRLC after they've tried to deal with money problems on their own, often making matters worse, Karen Cox says.
"Often people will come to us at the end of a long tail of attempts to self-help, where they have gotten out of the frying pan and into the fire by running up further accounts."
In an attempt to consolidate debt, many people end up owing more, she says.
We're seeing people using [buy now, pay later] to pay for absolute basics like petrol or groceriesFRLC CEO Karen Cox
"They end up spending thousands of dollars on things like credit repair and debt management firms, which usually just add to their problems. Our concern is that that may ramp up because of the current economic conditions and the cost of living in particular."
Buy now, pay later products are a particular case in point, Katia Sanderson says.
"Callers will often talk about the mortgage or the rent that's worrying them, about their credit card debt and utility bills. It's often not until our financial counsellrs probe that they'll disclose that they also have multiple buy now, pay later accounts on the go. Unfortunately, what we sometimes see is people prioritising repaying these accounts so they can keep them open. And we're seeing people using them to pay for absolute basics like petrol or groceries."
Industry could help pay for counselling
In November 2022, the federal government opened a consultation process with stakeholders about an industry funding model for financial counsellors, in which the institutions that people end up owing money to would help pay for the free financial counselling services. It was expected to come into play in July 2023.
The industry contributions would be voluntary and would add to funding from federal, state and territory governments.
In May this year, minister for social services Amanda Rishworth announced at the annual conference of Financial Counselling Australia (FCA) that she was committed to establishing such a model and securing the funding commitments from industry by August 31, 2023.
If more people can get assistance from financial counsellors to take the sorts of steps that will make their situation better rather than worse, that can only be a good thingFRLC CEO Karen Cox
"The idea of an industry funding model was first raised more than 20 years ago, so this is a momentous development for our sector," FCA CEO Fiona Guthrie said at the conference. "At a time when demand for financial counselling is manifestly exceeding supply, we need this model up and running as quickly as possible."
Karen Cox is of the same view.
"Financial counsellors simply cannot keep up with the number of people who need assistance. And over the coming months, that is likely to grow. If more people can get assistance from financial counsellors to take the sorts of steps that will make their situation better rather than worse, that can only be a good thing."
If you need help managing bills, call the National Debt Helpline on 1800 007 007 for free, confidential and independent information and advice.
Stock images: Getty, unless otherwise stated.