Treasurer Jim Chalmers has come under fire after Labor declared in 2025 that inflation was under control, only for it to roar back to life, raising the prospect of more rate hikes. Picture: Tertius Pickard
A bombshell study has ripped the lid off Australia’s secret shame, exposing a nation hooked on credit and dangerously exposed to what looks to be an almost certain interest rate hike next week.
The alarming research by financial data firm Digital Finance Analytics revealed thousands of households were drowning in over $1m worth of credit card, car loan, mortgage and buy now pay later debt.
Many of the suburbs where households held the most debt were middle- or lower-income areas and were dominated by families who had purchased their homes more than a decade ago, often when home prices were much lower.
A shock research finding was that some long-term homeowners remained buried in financial obligation due to constant refinancing – often to pay for new cars, holidays or just to stump up grocery costs.
The worst pain zones included 100 suburbs across the country where the average household debt exceeded $1m. There were another 60 suburbs where the typical household owed creditors $850,000-$1m.
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For comparison, the average borrowing household across Australia was revealed to have personal debts totalling $320,000, against an average income of about $120,000 a year.
This included an average of about $26,000 in consumer loans, such as car loans, and about $7400 in credit card or buy now pay later debt. The rest was usually home loan or investment debt.
RBA governor Michele Bullock is expected to announce a rate hike next week. Picture: NewsWire / Nikki Short
Experts warned that Tuesday’s potential cash rate rise could be the final blow for families already resorting to refinancing their homes to pay for groceries.
Martin North, head of research at Digital Finance Analytics, warned that while averages might looked manageable, they masked a disastrous reality for a large segment of the population.
“There is a segment of the population who are already cashflow negative, and for them, small rate rises will be disastrous and potentially a tipping point,” Mr North said.
He described the current debt burden as a “noose” around the necks of struggling families that “tightens over time, and as rates rise”.
Digital Finance Analytics director Martin North said debt levels were a reflection of a spending culture. Picture: Hollie Adams
“Banks do help, on hardship grounds they must, but will often extend and pretend, which keeps borrowers off default lists but disguises the true state of many households,” Mr North said.
The Illusion of Wealth
The investigation highlights a dangerous trend of “risky refinancing,” where homeowners consolidate short-term debts, like car loans and credit cards, into their 30-year mortgages.
Sarah Megginson, personal finance expert at Finder, warned that rising property values have created a trap where Australians feel wealthier than they are.
“Properties have surged in value over the last decade, and as a result many Australians are asset rich but cash poor,” Ms Megginson said. She cautioned against “risky” refinancing used to absorb lifestyle spending.
Personal finance expert and mum of three Sarah Megginson. Picture: Michelle Swan.
“Your debts feel easier to manage when they’re combined into one monthly payment, but your risk quietly increases,” she said.
“If you add a 5-year personal loan to a 30-year mortgage … if things go wrong, it’s now your house on the line, not just your lifestyle spending”.
“Gateway Drug” to insolvency
Beyond mortgages, the explosion in unsecured debt is staggering. The average borrowing household now carries about $24,000 in consumer loans and nearly $7400 in unsecured debts like credit cards and Buy Now Pay Later (BNPL) schemes.
Compare the Market economic director David Koch. CTM Jono Searle
Compare the Market economic director and former Sunrise host David Koch said credit card usage has surged, with 50 per cent of respondents in a 2025 Compare the Market poll reporting credit card debt.
This was a massive jump of nine percentage points from the previous year.
“Things like credit cards and personal loans create a bit of an illusion that we can afford things that we really can’t, and that can get some people into a lot of trouble,” Mr Koch said.
Ms Megginson said those accessing BNPL schemes needed to be more aware of what they were getting into.
“Buy Now, Pay Later is a gateway drug into bigger debts and deeper financial struggles,” she said, noting that BNPL services are now present in nearly 50 per cent of all new insolvency cases.
High debts will leave many households dangerously exposed if there is another rate hike.
“It’s training people to spend money they don’t have on things they don’t need”.
Mr North attributed the skyrocketing debt to a cultural shift toward “instant gratification” and a “need it now philosophy” driven by social media and heavy marketing.
If you are experiencing financial difficulty, contact the National Debt Helpline on 1800 007 007
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