BNPL arrears hit 3 year high of 9.3%

As the cost of living starts to bite, we get to test ourselves.

Do we do what we know is right deep down - be careful with our spending and look to clear debt, avoid BNPL and build an emergency fund?

OR do we do what we’ve been conditioned to for years: consume?

The true cost of living isn’t even here yet as the market adjusts to higher interest rates.

Don’t forget it’s not only home owners who will cop higher interest rates, but businesses also. They’ll look to pass on those interest costs to you and I, to protect their margins.

My expectation is that over Christmas and summer, consumer credit will balloon as people can’t help but spend and put it on the ole credit card or BNPL.

Get now, worry about it later right?

It’s already happening and we haven’t got to the silly season. Credit bureau Centrix reports that personal loan demand spiked in August to hit a 10-month high. The demand for personal loans outpaced levels last seen in 2021.

Some other key stats that may open your eyes from the August report:

- The number of consumer lending accounts in arrears is up 8% from a year ago

- 4.8% of car loans are behind - the highest level in 2 years

- BNPL arrears hit a 3 year high which is 9.3%

- Around 14,200 mortgages are in arrears, which is 0.98% of mortgages which is pretty typical but let's keep an eye on it going forward

From this data you can see that people prioritise rent and mortgage repayments to ensure they don’t lose what is most important to them; their home or place to live.

But the first thing to be missed is consumer debt, BNPL and car loans.

This is where BNPL and credit cards are so dangerous as you ‘feel’ like you can get away with it.

You don’t pay & nothing really happens. It’s in the credit providers' interest that you don’t pay so that the stinging interest & late payment penalties kick in. That’s where they make their money.

This is why I suggest you remove the temptation and GET RID of BNPL, drop your credit card limit.

You don’t know what 2023 has instore for you so tidy this sh!t up whilst you have the chance.

Wean yourself off of consumer debt. Consumer = consumption. Usually you use debt to buy dumb sh!t. You’re smarter than that.

This takes a change in mindset from consumption (which is the only reason many people use debt outside of ‘emergencies’) to storage. Delaying gratification - one of the concepts we know successful people have to master.

Build up that emergency fund and see what it’s like to have some spare ammunition sitting there if a battle knocks on your door like a sick child or broken-down car.

You’ll be blown away at the peace of mind an emergency fund and no consumer debt can provide for you.

Reverse some consumption and sell stuff around your house that you don’t use to clear some of that BNPL.

No one snorts their first line of cocaine expecting to be a cocaine addict. But it happens!

No one signs up to a BNPL dealer expecting to be getting smashed by late payment fees and high interest because their circumstances changed. But it happens and 9 out of 100 people are currently behind on their payments.

Delete the dealer off your phone.

Remember that if you are going to have difficulty making repayments on your debt, that you need to contact the lender/provider as soon as possible to try and arrange a solution or restructuring of the debt.

In a recent survey of BNPL users, of those who ran in to trouble with BNPL, only 24% of people asked for help.

It’s ok to ask for help, so get it done.

Be good out there,

Luke