People should be careful to avoid a Christmas debt hangover, financial counsellors have warned, despite Australians reducing their credit card bills amid the uncertainty of 2020.

Canberra financial counsellor Deb Shroot could be on the other end of the phone if you call the National Debt Helpline.

She said there had been calls from a whole new cohort of people this year.

“People who have maybe been fine at managing their debts but then this year they’ve either lost their job, they’ve had less hours and therefore have needed to seek help,” she said.

Although some have found themselves in trouble for the first time, others were able to break the cycle of financial stress, thanks to increased government support this year, in the form of JobKeeper and the JobSeeker coronavirus supplement.

“A lot of our prior customers were on Newstart and struggling to make ends meet, and for the first time in a long time they had enough money to live off,” Financial Counselling Australia’s Maura Angle said.

It’s something Amanda Cameron, the Aboriginal services co-ordinator at the Financial Rights Legal Centre, had also observed among the communities she worked with.

She was worried the new but temporary financial boost some were experiencing, if they were eligible for government support, could lead them to take on debt they might not be able to repay once support had decreased.

In particular, she was concerned about the growing prevalence of buy now, pay later schemes.

Amanda Cameron says Indigenous Australians experiencing financial trouble should call Mob Strong Debt Help. Photo: ABC News/Daniel Irvine

Her Indigenous community outreach work has found people were seeing more buy now, pay later advertising, particularly at the point of sale in stores and online checkouts.

With the social and family pressures associated with Christmas, she said it could be easy to overcommit financially.

“People only look at the first [buy now, pay later] payment and not the overall purchase, so it can lead into a debt trap and not thinking about the bills that are coming in the next few weeks,” Ms Cameron said.

“There’s a lot of cultural obligations for our mob as well, especially with this time of year with Christmas and travelling to see family.”

Buying now could mean paying for it later

This year, Australians have been boosting their savings, with the household savings to disposable income rate elevated.

Household wealth hit a record high last quarter, according to the Australian Bureau of Statistics, as property prices rebounded and bank deposits grew.

At the same time, credit card debt has reduced.

Figures from the Reserve Bank showed that in October, total credit and card charge balances stood at $37.8 billion – a drop of $11.7 billion from the same time in 2019.

There were 18.4 million cards on issue, 1.9 million fewer than last year.

While the figures suggested an improvement in household finances overall, the picture could be very different on the individual level for those that had lost jobs and livelihoods.

“There’s this bit of a divide between the haves and the have-nots at the moment unfortunately,” Ms Angle said.

Still, the number of calls to the National Debt Helpline have been well down on previous years.

However, Ms Shroot had been fielding more calls about buy now, pay later services.

The National Debt Helpline traditionally experiences a spike in calls early in the new year. Photo: ABC News/Luke Stephenson

The schemes are becoming more popular, although they remain “a small proportion of total consumer payments in Australia”, according to RBA governor Philip Lowe.

Corporate regulator ASIC found the number of active buy now, pay later accounts in Australia increased by 38 per cent in the year through to June 2019.

ASIC said the buy now, pay later approach was working for most customers who used it, but one in five were missing payments.

“Generally this starts with one buy now, pay later loan and maybe it’s $25 and it’s easy for them to maintain those payments,” Ms Shroot said.

“But over time, they may get two, three, four … six, seven, eight, and from different buy now, pay later companies, and it’s when they start to take out multiple loans that these repayments can become really difficult.”

There is no standard buy now, pay later product – the major operators in the space have differing repayment schedules, fee structures and penalties for late payments, which Ms Shroot said could make it harder to keep track of.

Ms Cameron has come across cases of people using the services to pay for essentials, such as groceries or pet food, as a symptom of a larger debt problem.

For example, the Indigenous credit, debt and insurance helpline Mob Strong Debt Help receives a lot of calls about people locked into expensive phone contracts, after being sold add-ons they did not need or plans they could not afford.

This can start a cycle of people taking out further debt, such as payday loans or, now, using buy now, pay later to pay for the essentials.

Worries about a new year spike in calls

In a typical year, the National Debt Helpline is on the front line, dealing the Christmas debt hangover experienced by those who have overextended themselves.

“Our call numbers do go up traditionally every year in January, February and March,” Ms Angle from Financial Counselling Australia said.

After a quieter-than-normal year, Ms Angle expected more calls in the new year, particularly in March as government support measures wind back.

Ms Cameron said the back-to-school period could be a particular stress for families, coming shortly after Christmas.

She was also anticipating more buy now, pay later offers for purchases of school supplies.

“If you really need to borrow, try to keep the amounts to a minimum to ensure it’s as easy to pay back as possible,” she said.

And if you do fall into trouble, the message from Financial Counselling Australia is to ask for help early.

“We’re encouraging anyone who’s in financial stress or financial hardship to reach out, seek assistance, call a financial counsellor,” Ms Angle said.

Ms Cameron added that Indigenous Australians could call Mob Strong Debt Help, a confidential service that puts people in touch with financial counsellors and lawyers.

–ABC