The last reports from the Commonwealth Bank reveal that household spending is falling month on month as Australians start to feel the impact of rate hikes on their day-to-day budgets. This could be one of the many reasons why we are seeing an increase in personal loan commitments, with a 9.5% increase seen in the most recent statistics from the Australian Bureau of Statistics (ABS).

Why are households spending less?

If you didn’t feel any impact from the Reserve Bank of Australia’s (RBA) initial decision to start raising rates, you might be wondering when this shift towards penny pinch really started.

Data from the Commonwealth Bank confirms this, indicating the first monthly decline since the RBA began raising rates earlier in the year. Decreases were seen in spending on buying a home, health and fitness, household services and transportation.

In reality, it usually takes consumers about three months to fully feel the effect of rising rates, so what we are experiencing now is a cumulative impact that will only continue to hit.

At the same time, we are experiencing what many call a “cost of living crisis”. Although rate hikes contribute to the rise in the consumer price index (CPI), many other factors come into play. These include geopolitical unrest, supply chain blockages and labor shortages.

Given the rising prices of our grocery carts, our energy bills and even our fast food treats, it’s no surprise that Australians are choosing to prioritize cost cutting where they can.

Meanwhile, year-on-year household spending is still on the rise, according to ABS statistics. This more likely reflects last year’s pandemic conditions, rather than this year’s incredible financial climate. Indeed, according to Westpacconsumer confidence is at near historic lows.

What does the growing popularity of personal loans tell us?

In order to rein in these rising costs, personal loans are apparently becoming an even more popular way for people to control their spending.

Since the average unsecured personal loan has no restrictions on where the money is spent, it is a desirable alternative to other forms of credit.

Personal loans can carry lower interest rates than comparable credit cards, making them preferable when dealing with larger amounts that cannot be repaid within a monthly billing period. Note that credit cards offer interest-free days and many have interest-free introductory periods, making them still good for many occasions – but you’ll have to choose carefully!

Australians may also have an easier time acquiring these loans, with relatively stable credit ratings despite recent years of financial uncertainty.

Make loans meaningful with our guide to easy personal loans and some tips for reducing debt before 2023. To find our expert favorites, read Mozo’s Best Personal Loans.