Canberrans racking up multiple debts have piled into consolidation loans in attempts to seize back control of their personal finances, but experts warn there are traps for the unwary pursuing such a strategy.
The latest Lending Finance figures released by the Australian Bureau of Statistics show a big jump in debt consolidation for the month ending November 2018, in a climate of increasing economic uncertainty.
The amount consolidated leapt to $20,881,000, up 56 per cent from $13,324,000 in October, and up 67 per cent from $12,442,000 at the same time the previous year.
The last time Canberrans were consolidating debts at this level was June 2016, when the figure was $22,694,000.
With wages flat but living costs rising, particularly rents, many Canberrans would have resorted to credit cards to keep going only to find themselves maxed to the limit and their options exhausted.
A spokesperson from Care Inc, a community-based debt advice service, said consolidation was always a popular option to reduce repayments and the stress of being hounded by creditors.
“People have always wanted to do that because of the stress of dealing with five creditors versus dealing with one,” she said.
She said the good thing about consolidation was that it provided an end date for the debt, especially credit cards which people might never pay off.
But the major pitfall was that many did not look at their predicament honestly, kept their cards and fell back into using them, exacerbating the situation.
“Unless they look at their budget and work out if consolidation is actually a solution, and they cut up their cards, it might be just compounding the problem,” she said.
She said many people were swapping credit cards for debit cards, so they could still buy items and pay bills online but maintain better control of their finances.
The Care spokesperson said an honest financial assessment could provide the answers people needed but also alert them to other options such as hardship arrangements or asking for a reduction interest.
Care aims to let people know what’s available to them so they can be well informed and factor that into their thinking.
It sees a range of clients from those on low incomes to the better off who ironically can acquire more debt and have more to lose when illness or job loss occurs.
But a growing problem in Canberra is the proliferation of payday loans in a loose regulatory environment.
“We get a lot of people with three, four, five, sometimes more payday loans, which is a trap because you need another one while you’re paying off one, and you don’t have any money for living expenses,” she said.
Canberrans had total personal finance commitments of $122,505,000 at the end of November 2018. Total credit limits at the end of the month was a whopping $4,422,714,000.
Care Inc. can be reached on their website or on 1800 007 007.