Debt consolidation loan enquiries have increased over the last month and a half, as Aussies continue to grapple with the pressure of skyrocketing fuel prices and ongoing mortgage rate hikes.
Recent Savvy data has shown that the demand for debt consolidation loans has increased from just over one in five enquiries (23.6%) between mid-January and the end of February to more than one in three (33.5%) from the start of March up to now.
Debt consolidation is a process in which applicants take out a personal loan to cover multiple outstanding debts, often credit card, personal loan, car loan or cash loan balances, and bring them into a single payment.
Numbers painting a dire picture for Aussie household debts
While many have predicted that the economy is headed towards a recession, it appears that the surge in inflation is now ahead of family budgets.
According to the ABS, the value of new fixed term loan commitments for purposes other than the purchase of road vehicles has risen substantially since the March Quarter of last year, even reaching the road vehicle line by the end of the December Quarter.
Even before the current Middle East conflict began, RBA data showed that there was a sharp spike in the value of card balances accruing interest.
While card balances aren’t at previous record levels, that’s thanks in large part to the introduction of buy now pay later (BNPL) services like Afterpay being introduced and garnering mass appeal.
The figures today appear in stark contrast to the years following the onset of the COVID-19 pandemic, where interest rates plummeted and credit spending retracted sharply.
During this period, cheaper personal loan and mortgage rates gave Aussie families much-needed relief and allowed many to use spare funds to pay down their debts.
That sadly isn’t the case anymore, with households no longer having much room to move.
The biggest factor for most families right now is fuel, with diesel sitting above 300 cents per litre and the cheapest unleaded petrol hovering around 220 cents per litre nationwide even after the Australian Government passed on a fuel excise discount.
In a recent Savvy survey, 76% of respondents stated that they were experiencing moderate or major financial stress as a direct result of the hikes in fuel prices.
“Historically, debt consolidation isn’t among our most common loan enquiries,” according to Bill Tsouvalas, Managing Director of Savvy.
“It’s clear that households around the country are finding it increasingly difficult to juggle their living expenses, which is why many are turning to debt consolidation.
“At the start of last year, people were being told to expect rate cuts.
“Families have acted on that advice, only to be hit with two rate rises since February and with more still to come, which will take the cash rate past its 2025 peak.”
All eyes will be on the Federal Budget in May, which is expected to include cost of living policies to reduce the impact of the Middle East conflict.