With credit default rates rising, which bills are the most at risk?

As the cost of living causes significant financial stress, default rates are increasing on lines of credit – that means personal loans, credit cards, and home loans, amongst other forms of finance. 

A study by the University of Sydney and credit bureau illion has uncovered which of our payments are the first to fall off during hard times. 

This can help us get a better understanding of what our relationships are with different financial providers, and the long term implications of defaulting on debts.

Top 10 most at risk bills and payments

The study was able to determine a priority list when it comes to which payments we’re most likely to keep making. Starting with the first things that fall to the wayside when times get tough - and finishing with the things we hold on to until the bitter end, we have:

• Used up credit cards with other lenders: According to this study, Australians are a loyal country. We want to be able to turn to our main banking institution in times of crisis, so the first thing to go is often a no-longer used credit card with a lender outside of our main banking provider.

• Unsecured personal loan: It makes sense that unsecured loans have their payments missed before secured personal loans, because the stakes are lower. Once Aussies have used the loan for its purpose, these loans tend to fall down the priority list for paying back during times of financial hardship.

• Credit card with an outstanding line of credit: Since these can potentially be a helpful tool in times of crisis, people tend to stay more on top of these.

• Buy Now, Pay Later: BNPL payments have only recently begun contributing to your credit score, so there may have been some frivolousness with paying these back in the past.

• Investment home loans: Now we get into the big stuff. Home loans are serious business, but people are more likely to default on investment homes they don’t live in than the roof over their heads.

• Utility bills (gas, electricity, water): These are high value services, and because they’re so essential, there are lots of plans in place to help you keep them paid. This stops them from being at the top of this lift.

• Secured loan: Whether it’s a car loan or a loan secured against another valuable asset, the loss of mobility and possessions is a major hit to be avoided at all costs.

• Primary home loan or rent: Even more important is the roof over our heads, a total top priority.

• Overdraft: If customers take out a personal overdraft, money borrowed beyond what is in their account, they tend to view this as a last resort and keep it paid.

• Phone and internet bills: In our world where connectivity is needed 24/7 to be able to work, conduct finances, and get help, Aussies deem phone and internet bills the most important payments to keep on top of.

How can I stay out of debt?

While not all debt is bad, it’s important not to underestimate your debt and to stay on top of your cash flow. Losing track of payments can result in more money leaving your account than entering it, or overextending yourself on which new payment plans you enter into (things like new credit cards of Buy Now, Pay Later arrangements).

Develop a budget and try your best to stick to it. If you do foresee a circumstance where you won’t be able to make a payment on any kind of bill, it’s probably best to notify the provider or lender beforehand. In some circumstances, there may be arrangements they can make to help alleviate some pressure.

When you opt for a new line of credit, make sure it’s an informed choice. Consider switching out your credit card for a balance transfer card while you pay down any debt, or opt for a low rate card if you suspect you’ll have any outstanding balance from month to month. And just remember that all debt can impact your credit score and future borrowing power! 

If you’re experiencing serious financial hardship, contact the National Debt Hotline. Otherwise, stay savvy with some grocery store and at home savings tips.