Excessive use of credit is the thing that gets most people into financial trouble, and the number having trouble managing their debts is rising.
According to the Australian Financial Security Authority, there were 31,589 personal insolvencies in Australia in the year to June – an increase of 5.6 per cent over the previous financial year.
AFSA said that where it could identify a specific cause, excessive use of credit was the most common, with high credit card debt the most common trigger for insolvency. Other causes were unemployment or loss of income, and relationship breakdown.
Personal insolvencies have increased for the past three years, after falling or remaining unchanged between 2009/10 and 2014/15.
It was the second highest number of personal insolvencies on record. The peak year was 2009/10 when there were 36,539 personal insolvencies.
Personal insolvencies reached record levels in the Northern Territory (where there were 352) and Western Australia (4020).
Insolvencies rose 14.3 per cent year-on-year in the Northern Territory, 12.9 per cent in Western Australia, 10.2 per cent in Tasmania, 7.1 per cent in new South Wales, 5.1 per cent in South Australia and 2.6 per cent in Queensland.
There was a fall of 1.5 per cent in Victoria and no change in the Australian Capital Territory.
Personal insolvencies were made up of 14,834 debt agreements, 16,811 bankruptcies and 214 personal insolvency agreements.
According to the latest ME Bank Household Financial Comfort Report, 40 per cent of respondents said higher living expenses was the main reason their financial situation was getting worse.
Sixteen per cent of households reported that they were not always able to pay their bills on time during the previous 12 months, 19 per cent had sought financial help from family or friends and 13 per cent sold or pawned something to buy necessities.
The survey also revealed that 56 per cent of households renting or paying off a mortgage were paying more than 30 per cent of their disposable household income on accommodation. This is a common indicator of financial stress.
Seven per cent of households said they could not always pay their mortgage on time during the past year.
According to a Digital Finance Analytics mortgage stress report last month, the number of households “exposed to risks” is rising. DFA estimates that around 970,000 households (30.3 per cent of owner-occupied borrowing households) are in stress.
DFA defines a stressed household as one were net income does not cover ongoing costs. If the household does not have other assets (such as savings) or credit and is unable to make payments, it is in severe stress.
DFA estimates that 57,100 households are at risk of falling into arrears (being behind in making a payment by 30 days or more) over the next 12 months.
