Arrears refer to payments that are overdue or unpaid by the due date. It is a financial term commonly used in the context of loans, mortgages, rent, and other recurring payments. When an account is in arrears, it means the borrower or tenant has not made the required payments on time, resulting in an outstanding balance that needs to be settled.

Why is understanding arrears important?

Understanding arrears is crucial for several reasons:

  • Financial management: Knowing the implications of arrears helps individuals and businesses manage their finances effectively.
  • Credit score: Being in arrears can negatively impact credit scores, making it harder to obtain loans or credit in the future.
  • Legal consequences: Persistent arrears can lead to legal action, including eviction, repossession, or court judgments.
  • Interest and penalties: Arrears often attract additional interest and penalties, increasing the overall amount owed.

Causes of arrears

Financial hardship

Unexpected financial difficulties, such as job loss, medical expenses, or reduced income, can make it challenging to keep up with payments.

Poor financial planning

Lack of budgeting and financial planning can result in missed payments and accumulating arrears.


Spending beyond one’s means can lead to insufficient funds to cover necessary payments, resulting in arrears.


Miscommunication between parties, such as tenants and landlords or borrowers and lenders, can lead to misunderstandings about payment amounts or due dates.

Types of arrears

Mortgage arrears

Mortgage arrears occur when a homeowner fails to make their mortgage payments on time. This can lead to penalties, increased interest, and potentially foreclosure if the arrears are not addressed.

Rent arrears

Rent arrears happen when a tenant does not pay their rent by the due date. Persistent rent arrears can lead to eviction and legal action by the landlord.

Loan arrears

Loan arrears refer to overdue payments on personal loans, car loans, or other types of credit. Being in arrears can damage credit scores and result in additional fees and interest.

Utility arrears

Utility arrears occur when payments for services such as electricity, water, or gas are overdue. This can lead to disconnection of services and additional charges.

Consequences of arrears

Legal action

Creditors or landlords may take legal action to recover the overdue amounts, which can include court judgments, repossession, or eviction.

Credit score impact

Arrears negatively affect credit scores, making it more difficult to obtain future credit or loans.

Increased debt

Arrears often attract additional interest and penalties, increasing the overall amount owed.

Service disconnection

For utility arrears, providers may disconnect services until the outstanding payments are made.

Managing arrears

Communicate with creditors

Open communication with creditors or landlords can help negotiate payment plans or extensions to manage arrears.


Creating a budget and sticking to it can help ensure all payments are made on time and prevent arrears.

Seek financial advice

Professional financial advice can provide strategies to manage arrears and improve financial health.

Prioritise payments

Prioritising payments based on their importance and potential consequences can help manage limited funds more effectively.

Example of managing arrears

Imagine a tenant in Sydney who has fallen behind on rent due to unexpected medical expenses. The tenant communicates with the landlord to explain the situation and negotiates a payment plan to catch up on the overdue rent over the next three months. By maintaining open communication and sticking to the agreed plan, the tenant manages to clear the arrears and avoid eviction.


Arrears can have significant financial and legal consequences if not managed properly. Understanding the causes and implications of arrears, and taking proactive steps to address them, is essential for maintaining financial health and avoiding further complications. By communicating with creditors, budgeting effectively, and seeking professional advice, individuals and businesses can manage arrears and work towards financial stability.

For more information on managing arrears and financial difficulties, you can visit the Australian Government’s MoneySmart website.

DISCLAIMER: The information provided on this page is for general informational and educational purposes only and is never intended as financial advice. While we strive to ensure that the content is accurate and up-to-date, it may not reflect the most current legal or financial developments. Always consult with a qualified financial advisor or professional before making any financial decisions. Use the information at your own risk.


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