One in four Australians spiralling into debt
By Simone Rosamond-Davis
One in four Australians could fall into a debt spiral if the country hits an economic downturn according to a recent survey by Veda Applied Intelligence. Among respondents, 21 per cent of Australians stated they are unsure of how they will make their next credit card, mortgage or loan payment, only one in five had ever sought financial counselling.
With 2.7 million already finding it hard to meet their credit commitments the study found that a quarter of those already struggling financially would seek to overcome their economic stress by increasing their credit card limit.
Peter White, CEO of the Finance Brokers Association of Australia says that in hard times, consumers shouldn't push their credit limits.
"People should pay off that which is most expensive to them, usually their credit card," says White. "If they increase their payments, it will save them large amounts of money in interest payments."
Since Australian credit reports do not currently reveal a person's credit limits -- or whether they are failing to make their minimum payments -- there is nothing to stop someone who is already in considerable debt from applying for even more credit.
"The most sensible way for people to approach this is to understand their own personal circumstances and realise that what is right for one person may not be right for another," says White.
The recent Reserve Bank of Australia cut the official cash rate by 0.50 per cent to 3.75 per cent could herald some good news for those Australians facing hard times. The rate cut will mean that for many Australians their mortgage payments could decrease, which will in turn leave them with money to pay off debt, save or use as needed.
The bi-annual Veda debt survey also highlighted the difference in debt stress across the states with findings showing that Queenslanders (43 per cent) and South Australians (50 per cent) are experiencing the most strain in meeting repayments with Western Australians (34 per cent) the least affected.