Borrowing in Australia has reached unsustainable levels, some credit experts warn – with personal debt rising steadily over the past three decades.

 Household debt has soared to 211% of income, which translates to an amount of around $169,000 per year for an Australian earning an average income of $80,000. (1)

With Australia recently becoming the fourth most indebted nation in the world, and the role of those providing credit more complex than ever before, the question needs to be asked: how did we get here?

1. Choosing debt

With an increasing number of credit providers offering lending products, Australia has become a nation of ‘buy it now’ consumers. Interest-free loans, same-day lending and readily available credit cards mean that people can choose to buy whatever they want now and worry about paying it back later – sometimes without giving much thought as to whether that will be possible. With so much credit choice available, credit has changed how people save and spend. While previous generations usually had to save their money before making a purchase, the same isn’t true today. In fact, 22% of Australians don’t have any savings at all. (2)

For many Australians, the number one source of debt is their home. More than one-third of Australians are paying off a mortgage (3),  and home loans make up the greatest proportion of all personal debt in Australia, at 56.3%. Despite property prices rising steadily across the country, Australians with a dream of home ownership continue to pay these prices – and lenders have accommodated by lending up to 95% of the purchase price. As a result, the size of loans relative to income continues to grow – and not all Australians understand the profound long-term implications of a mortgage on their financial position.

2. Narrow means of funding

Debt is not always a choice. As the cost of living continues to be pushed up at a higher rate than average incomes, nearly one-third of Australians are now living from paycheque to paycheque. (4)  Without savings to fall back on, more people are reaching for their credit cards and other ‘quick fix’ financial solutions. In June 2017, the Australian Securities and Investments Commission found there were 14 million open credit card accounts, with an outstanding balance of almost $45 billion. (5)

When financial hardship strikes, such as a medical diagnosis, a serious accident, or an unexpected redundancy, people may feel they have no other choice but to use their credit cards or take out personal loans to pay their healthcare bills or keep up with everyday expenses while they’re out of work. This can be the start of a debt spiral in which many Australians find themselves trapped for years or even decades.

3. Unsustainable debt

When consumers take up financial products they don’t understand, they can end up in a cycle of borrowing to repay interest. Credit cards and personal loans can seem an easy solution to all financial problems. However, around 1.9 million Australians are struggling to repay their credit card debt: 550,000 people are in arrears, 930,000 have persistent debt, and 435,000 people are only making small repayments on their cards. (6)

Recent findings have brought to the fore Australians’ low level of financial literacy, and this is a major contributing factor to consumers’ high debt to income ratios. Some consumers don’t understand the conditions of promotional financial products, such as an interest-free period for balances transferred to a new credit card. Some may not realise the interest-free period only applies to the original debt, not to new purchases made with the card, and they don’t expect the interest rate to rise at the end of the promotional period. As a result, almost one-third of consumers actually increase their debt by 10% or more after transferring the balance.6

What can we do?

Without adequate levels of financial literacy, many consumers are making poor financial decisions. What’s more, 80% of Australians don’t receive guidance from a financial adviser to help with complex financial matters such as insurance and superannuation, as well as assisting them to manage their debt.6 

With an increasing number of credit unions, payday lenders, other financial institutions, and post-purchase short term financing programs facilitating credit, consumers rely on lenders to be open and honest in their communications and marketing around financial products – ensuring they’re matched with the best solution for their needs. To achieve this outcome, the royal commission is working on a tightening of lending regulations to help stop people taking on more debt than they can afford.

We feel the most positive way forward is to work together to increase the financial literacy of individuals, families and communities. Increasing the level of literacy, coupled with providing greater mechanisms for matching products to circumstances is surely a step in the right direction. By aligning with business partners who share the same philosophy of financial education and empowerment, we can all help Australians make better financial choices and enjoy a financially sustainable future.


1 OECD, Household debt (indicator). doi: 10.1787/f03b6469-en, Accessed August 2018.

2 ANZ, Australian Financial Wellbeing Report, April 2018

3 Australian Bureau of Statistics, 2016 Census QuickStats.

4 BT Financial Group, Australians still living pay cheque to pay cheque, May 2017.

5 ASIC Media Release, ASIC’s review of credit cards reveals more than one in six consumers struggling with credit card debt, July 2018.

6 Investment Trends, 2015 Direct Client Report.


Melanie Randell
Head of Business Optimisation and Risk

T: +61 3 8627 0600

December 2018 - FNSCRD403 - Manage and recover bad and doubtful debts - FNS51520 Certificate IV in credit management

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