If the Reserve Bank raises interest rates, consumer advocates say it will put further fiscal pressure on the economy and could push more households into bankruptcy.
“Rising interest rates will be the straw that broke the camel’s back for many customers,” Mortgage Stress Victoria chief executive Nadia Harrison said.
“If interest rates rise, many people will become financially unstable.”
Nadia Harrison says for people struggling financially, one change can mean everything collapses. (ABC News: Darryl Torpey)
According to ABS data, around one in three Australians have a home loan, with the majority having a variable rate.
with another person Interest rate hike could come at Tuesday’s Reserve Bank board meetingFinancial counselors are bracing for an increase in calls to debt helplines.
Economists say the data shows Inflation rate recovers to 3.8% This is significantly higher than the central bank’s target, making it very likely that interest rates will rise.
Roy Morgan data shows February rate hike could cause ‘huge economic losses’ For many Australians, a rise of 0.25% could put 1.3 million households under mortgage stress.
More employers calling debt helplines
Financial Counseling Australia CEO Domenic Meyrick said it wasn’t just low-income earners who were struggling.
He said calls to the National Debt Helpline from employed, middle-income Australians were increasing, and requests for assistance from a team of financial counselors were back to pre-pandemic levels.
In the last six months of 2025, 83,545 people called the Treasury Helpline, 30% of whom were in full-time employment.
“We had more groups. [of 14 per cent] They had part-time paid jobs,” Dr. Meyrick said.
”That’s 44 percent of callers who are employed and have an income but are still struggling to make ends meet.”
He said the data also showed that of the 83,545 people who called the National Debt Helpline, 11% were under mortgage stress.
Domenic Meyrick says more Australians are seeking financial advice as the prices of everyday goods soar. (ABC News: Simon Winter)
A significant portion of the callers had dependent children, so “the whole family” was affected, Dr. Meyrick said.
“We know that this time coming up… February, back to school… it’s going to be a very difficult time,” she said.
“We often hear from people who are suffering immensely and have no idea what to do next.
”Often, by the time people consult a financial counselor, they have experienced high levels of financial stress, but the impact on mental health and levels of psychological stress are incredibly high.”
Between June and December last year, 30% of people who called the government debt helpline were employed full-time. (Unsplash: Nathan Dumlao)
“I skip medical appointments and meals.”
Dr. Meyrick said the National Debt Helpline’s financial counselors frequently hear from people who miss medical appointments, skip meals or eat less.
Financial counselors regularly hear about clients skipping meals or struggling to make ends meet. (Pexel: michael burrows)
”[These are] These are people who are having trouble sleeping at night and spending time worrying about how they’re going to cover their next bill,” she said.
Dr Meyrick said the Reserve Bank’s job was to control inflation, which was “very important for the whole community”.
But he said further rate hikes would be a “bitter pill” for mortgage holders already facing financial stress.
Dr. Meyrick predicts that as interest rates rise, calls to debt helplines will skyrocket.
Already, 20% of people calling our helpline are experiencing housing stress, including struggling to pay their mortgage, rent, interest or strata.
Dr Meyrick said there was a notable spike in demand for aid from Victoria, New South Wales, Western Australia, Queensland and South Australia in early January.
He said there were a number of reasons why Central Australia was feeling the pain, but one of the factors was rising house prices and therefore how much debt people were taking on to get into the market.
“There are people who are in a double whammy… They are stressed by the increased cost of living, but they are also mortgage holders.”
Dr. Meyrick said.
“What this means is that rate hikes come from both sides.
“There’s definitely pain there.”
How did we get here?
This situation has been brewing since the coronavirus pandemic in 2020, when the Reserve Bank cut interest rates to emergency levels to keep capital flowing.
The Reserve Bank raises interest rates to reduce high inflation, the annual rate of price increases that indicates an overheating economy.
When Philip Lowe was Reserve Bank governor, he promised that interest rates were likely to remain low until 2024. He later apologized for providing unclear guidance to Australians, which resulted in hundreds of thousands of people taking out huge mortgages.
However, inflation began to ramp up in 2021, and interest rates were raised in 2022 and 2023.
Inflation appears to be under control by 2024, returning to the central bank’s so-called “target range” of 2-3%.
Interest rates were cut three times last year on expectations that inflation would slow further.
But that doesn’t appear to have happened, and most economists now expect a rate hike on Tuesday and possibly as soon as May.
Supporters say Australians who are unable to repay their loans should contact their lenders sooner rather than later. (Unsplash: Vitaly Galiev/file photo)
Borrowers in dispute are urged to contact their lenders.
People involved in disputes are encouraged to approach their lenders as soon as possible, as banks have a duty to provide assistance to people in financial need.
“There is a correlation between people with mental health problems and people becoming terminally ill.” [debt collection] It’s a process in progress,” Mortgage Stress Victoria’s Ms Harrison pointed out.
“They don’t open emails because it’s stressful and alarming.
“But there is also a category of people who are in over their heads,” she added of the mental stress that comes with financial problems.