Australians are going into debt to pay for everyday essentials, according to survey data that exposes how families are coping with the cost-of-living crunch.

Figures published on Tuesday by Compare Club found 30.95 per cent of surveyed consumers are using Buy Now, Pay Later (BNPL) services like Afterpay and Zip to buy groceries and fuel.

Michael Stevens, a 24-year old from Victoria, uses multiple BNPL services and says what started out as a way to afford bigger purchases has turned into a daily habit.

“When I started using services, I was trying to cover larger expenses like car repayments, but then I started using it for everyday expenses like groceries and clothing,” he said.

“Originally, it was a one-time thing, but that’s slowly progressed to using them all simultaneously.

“The rising living costs have made it hard to afford the most basic things. But it’s a trap; it’s not extra money. I tend to think of it as a short-term loan.”

‘Significant shift’

Almost 62 per cent of Australians who responded to Compare Club’s survey are now using BNPL, with those aged 25 to 54 having a materially higher rate (69 per cent).

The company believes the increasing use of BNPL for essentials is a “significant shift” in the way Australians are using the controversial credit products.

“BNPL has become deeply ingrained in Australians’ financial toolboxes,” Compare Club’s head of research Kate Browne said.

“It’s no longer just for impulse buys or big-ticket items. For many, it’s becoming necessary for day-to-day living right through to paying for expensive but necessary dental care.”

The increasing reliance on short-term credit comes as millions of households navigate torrid cost-of-living pressures, with energy, rent and mortgage repayments rising sharply in 2022-23.

Retail partnerships

BNPL services like Afterpay have increasingly leaned into partnerships with retailers of essential goods to capitalise on that rising demand, and consumers have found tricky workarounds too.

That includes buying gift cards for supermarkets or petrol stations using BNPL services.

Critics have feared the trend is contributing to rising levels of indebtedness and financial stress because BNPL firms haven’t been required to conduct traditional credit checks before lending.

Almost a quarter of those surveyed by Compare Club reported owing between $1000 and $5000 across their BNPL accounts, while 20 per cent said they’re hit with late fees every month.

Browne said one respondent from Western Australia reported that their entire pay had gone directly to paying down their BNPL debt of more than $5000.

“Many people like using BNPL because you’re not credit checked upfront,” Browne said.

“However, consumers must be aware that they charge monthly and late fees, and any debt will appear on your credit rating. A bad credit score will haunt you for five years.”

Enhanced protections

Looming new regulations covering BNPL providers will soon enhance protections for shoppers, but there are lingering concerns the changes don’t go far enough to mitigate the financial risks.

Australians are, however, no strangers to going into debt for essential purchases, with the nation racking up billions in credit card debts through daily spending in the past year alone.

Stevens said that BNPL does not attract interest – though there are account and late fees – which can make it useful for some consumers, but that whatever debt is incurred, it must be paid off.

“The trick is to make sure the money is paid back within the period,” he said.