SBS language | Settlement Guide: Will Payday Loans and the Pandemic Lead to a “Debt Tsunami”?

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Strong points

  • The National Debt Helpline and Beyond Blue find that financial pressures cause mental health problems.
  • Most financial advisors report that their clients are less stressed and more optimistic after seeking financial advice.
  • Young people are more likely to use payday loans or personal loans to make ends meet.

National Debt Helpline financial advisor Sarah Brown-Shaw has spoken to thousands of people in financial crisis before, but the economic hardship caused by COVID-19 is unlike anything she has seen in previous years.

Many international students who worked normally, before Australia’s first recession in nearly 30 years, are now asking for access to basic necessities such as food as they struggle to pay their tuition and rent.

Terrible. There is nothing worse to be honest.

Recent consumer data released by the Consumer Policy Research Centers shows that seven in ten young Australians are now concerned about their financial well-being.

Good Shepherd is one of Australia’s oldest charities providing microfinance products and services to the needy.

Its chief economic and corporate welfare officer, Megan McAlpine, says her organization is approached by many temporary migrants who have been excluded from government financial support programs.

She says those hardest hit by the ripple effects of COVID-19 are young people, new migrants and women.

Break the piggy bank

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His observations echo recent consumer data showing that young Australians between the ages of 18 and 34 are three times more likely to have taken out a loan from a payday lender or lease in July and are twice as likely to have taken out a personal loan just to make ends meet.

Many people work in industries that have been hit the hardest such as hospitality or the retail sector or people who work part time or have casual jobs.

Brown-Shaw says those with little or no income find it difficult to access loans – that’s where financial advisors like her come in to find creative solutions.

One of the legal requirements when you borrow money is that the lender must do an appraisal to make sure you can afford the repayment.

Brown-Shaw says it’s when people who are in dire straits turn to quick and insecure lenders who don’t perform proper checks and evaluations to the same standards as banks.

She says newcomers to the country are often unaware of safer places to borrow where the fees aren’t as high.

People often opt for payday loans or quick loans – there is a huge risk associated with these kinds of products.

The Financial Rights Legal Center is part of the National Debt Helpline which provides free legal advice to people in financial difficulty.

As desperate times call for desperate action, senior lawyer Jen Lewis is warning people to avoid payday loans at all costs.

Lewis is often contacted by distressed callers whose bank accounts run out of money for basic cost of living after loan repayments are directly debited from their income or the Centrelink payment.

Usually these loans will have very high interest and fees. You often pay back several times more than the original loan.

Some of the payday loans over $ 2,000 are often secured by an asset like a car.

This means that the car itself risks being taken if a borrower falls behind in their repayments.

The resulting effect is the inability to drive to work or drop children off at school because the car has been picked up.

All of this means that you very quickly find yourself having to take out another payday loan to pay off the first one, which is when you are really in the debt trap.

Brown-Shaw also cautions against other loan products such as seemingly harmless pay-after-payment programs and buy-it-now programs that allow easy access to multiple contracts.

Cyclist

Cyclist

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With ten percent of the Australian workforce expected to be unemployed by Christmas, many workers have lost their jobs or seen their hours cut, drastically reducing a borrower’s ability to make repayments. regular.

The minute you fall behind, that’s when lenders start hitting you with pretty big fees, interest, and charges.

McAlpine says another risky loan product to avoid is the lease-to-buy program which is touted as a cost-effective way to access everyday essentials.

They are actually a very expensive way to buy these products with very high interest rates associated with it.

While consolidating all of your debt might sound appealing, Lewis urges people to seek financial advice from the National Debt Helpline first.

Entering into a Part 9 debt agreement is in itself an act of bankruptcy. In general, there are much better options for them.

Unlike Buy It Now programs, payday loans are governed by the National Consumer Credit Protection Act.

Jen Lewis says the Financial Rights Legal Center can help consumers resolve their debt disputes if they think they’ve been loaned money they couldn’t afford to pay back in the first place or if the loan does not meet the borrower’s original requirements and objectives.

There is a free dispute resolution mechanism to dispute this loan and if you are successful you just have to pay off the principle.

Megan McAlpine says that in addition to providing micro-finance options to those in financial difficulty, Good Shepherd also provides interest-free, no-charge loans to non-permanent residents for things like appliances, washing machine, school needs, furniture and, in some cases, medical bill.

This particular loan can go up to $ 1,500 and it is for people who have a Medicare card or people who earn less than $ 45,000 per year and a lot of people have access to this loan.

Funded by the Australian government and the National Australia Bank (NAB), Good Shepherd also offers household assistance loans to people who have lost their jobs due to COVID-19 to cover utility bills and rent up to up to $ 3,000.

Single borrowers will need to earn less than $ 60,000 or $ 100,000 if you have dependents to access the loan.

The loan is available for anyone with a visa that expires after the loan term which lasts 12 to 24 months.

Payments are made directly to the supplier of the goods or to the rental agency or to the utility provider.

McAlpine believes a debt tsunami is already on a lot of financial hardship due to a combination of a pre-COVID-19 credit-based lifestyle and the economic downturn caused by infection control measures.

McAlpine criticizes the credit industry which has made it easier for borrowers to access high-risk loans such as Afterpay in recent years.

Coins

Coins

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Then get into other difficulties on the track where they are not able to repay them.

Brown-Shaw says the first call to the National Debt Helpline is often the hardest step for people who have never experienced financial difficulties.

Some are reluctant to call for fear that their financial information will be leaked to their bank or employer.

But Brown-Shaw reassures callers that the helpline’s financial advice service is free and confidential.

It’s totally non-judgmental, it’s totally confidential.

If you are stressed and need emotional support, contact Beyond Blue on 1300 22 4636

or Lifeline at 13 11 14.

For free and confidential financial and legal advice, contact the National Debt Helpline on 1800 007 007.

For more information or the interest-free, toll-free loans from Good Shepherd, visit their website or call 1300 121 130.

You can access the provider of your choice with the assistance of an interpreter by dialing the translation and interpretation service on 13 14 50.

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