Melbourne business owner Elle-May Michael, 29, is comfortable with debt.

Young Australians are taking on loans they can’t afford, racking up hefty credit card bills and taking on too-big mortgages.

New research by Experian’s credit bureau reveals that the average Gen Y is $428,000 in debt, with more than half admitting they are willing to use credit, even when they know they will not be able to comfortably make the payments.

They applied for twice as many credit cards, mortgages and personal loans as their seniors, owed $146,000 more and were twice as likely to have missed a mortgage repayment in the past 12 months.

David Grafton, Experian’s head of credit services and decision analytics, said a 20 per cent spike in Gen Y mortgage defaults over the past two years — “a rate not seen since the GFC”— was cause for concern.

“There’s some concern about millenials’ attitudes to risk taking,” Mr Grafton told news.com.au.

“It’s not just that they seem to be taking out quite a lot of credit, but the research findings suggest that they are less concerned about their ability to repay what they’ve borrowed, compared to the Gen Xs and the Baby Boomers.”

And the reason could well be linked to the smashed avocado debate that gripped the nation in recent weeks.

“I think it might in part be linked to difficulty in getting access to the housing market,” Mr Grafton said.

“If you become a homeowner, when that happens you tend to be a little more responsible,” he said.

Essentially, the commitment to paying off a large sum of money over 25 or 30 years was a rite of passage that traditionally snapped Australians into financial responsibility.

But, in today’s hard-to-crack market, “there may be a sort of ‘live for today’ mentality”, he said.

Unfortunately, this lack of financial awareness risked making home ownership even more difficult to achieve, especially if Gen Ys unwittingly trashed their credit ratings.

Applying for too many loans within a short period of time could lead to a black mark being placed against your name, regardless of whether your application was rejected, he said.

“So have a look at your credit score, exercise your right to get your free credit report and manage your credit score because it’s your long term interest to do so.”

‘BORROW TO INVEST’

For Melbourne’s Elle-May Michael, being in debt is a way to build a prosperous life.

She may owe the banks more than $380,000 but, unlike many of her peers, the money is being put to work.

The 29-year-old bought a business earlier this year after 10 years spent working in the charity sector.

Thanks to her long history of paying off small personal loans, along with a mortgage, Ms Michael was able to get a $135,000 business loan to buy Fitzroy’s in.cube8r gallery, a shop sells local, handmade jewellery and clothes.

Having already grown the business by 25 per cent, she’s building a future and has no regrets about taking on the debt.

“My parents ran a business when I was a kid and when I wanted a laptop they encouraged me to get a small loan so I could then learn to pay that off myself,” she said.

“Since then I’ve had probably six small $5000 personal loans and credit cards and I’m on my second mortgage.”

Along with her partner, she had a $550,000 mortgage on an apartment in Sydney, which the pair sold to move to Melbourne and reduce the size of their loan.

“That was the only way we were able to get the business finance, because we had all that previous credit history,” Ms Michael said.

Downsizing enabled the pair to raise enough cash to pay the required 50 per cent down payment for the business, while keeping a foothold in the housing market.

“If we had just let that go we probably would have never gotten enough to get a mortgage again,” she said.

“You’ve kind of got to piggyback off different things, be strategic, know the different products and use a broker.”

dana.mccauley@news.com.au