Christmas 2023 is just a distant memory for most of us now, as we head into the second half of autumn. But some Aussies are receiving a painful monthly reminder of the festive season courtesy of their credit card debt.
Indeed, some are suggesting that Australians are struggling to pay off their Christmas credit card debt, based on the latest figures. Those figures show the nation’s credit cards as having a total of $17.7 billion on which interest is being accrued. To add further context to a figure some will find hard to digest, that translates to $8.8 million in interest charges per day.
The February total represents an increase on the previous month, which in turn was a rise on December’s total debt. December’s total was also higher than November’s, meaning we’ve now had three consecutive months of increases in credit card debt.
Isn’t a post-Christmas credit card debt spike normal?
Yes, past data shows that a New Year jump in credit card debt is a relatively common phenomenon. In fact, the same three months last year also produced increases. What’s more, the total credit card debt at the end of February 2023 was higher than this year’s total.
In some respects, this can be seen as a positive sign – an indication of increasing consumer confidence. But Property Update’s Chris Dang suggests it might also be a sign of struggle. “The concern is … this time around some families might not be able to regain control of their debt.”
The weight of 13 Reserve Bank (RBA) rate hikes and higher expenses is what may contribute to that struggle, Mr Dang said.
Could this trend continue?
The good news is that while the total amount owing on credit cards rose in February, actual spending dropped. Credit card purchases totalled $27.03 billion in February, down $113.6 million on the previous month. It was, however, a 4 per cent increase on the February 2023 purchase total. That might sound alarming, but it is roughly in line with the current CPI of 4.l per cent.
What might happen in the months ahead is hard to predict, of course, but a cautionary approach to credit card debt might be wise. As The Motley Fool’s Scott Phillips notes, there are some extremely high rates being charged on some credit cards at the moment. And the big banks have been making some subtle changes, too, and not in the customer’s favour.
The interest rates Mr Phillips uncovered in his research came as a shock, even to him. “I had no idea that interest rates on some cards had reached 28 per cent.” His reaction was probably one many Australians would share: “Bloody hell.”
In relation to changes made by the big banks, Mr Phillips said: “And, by the way, you may have noticed (or probably didn’t, because they’ve kept it very quiet) that the banks are also starting to shorten their interest-free periods for many cards.”
Reversing your credit card debt trend
Nationally, reversing rising credit card debt is a task for the federal government. But what can Aussies do individually?
Scott Phillips embraces the old adage: “Spend within your means.” But he acknowledges this is currently very difficult for some. If a fridge dies or a car needs repairs, there’s little we can do about it.
Notwithstanding those limitations, Mr Phillips’ suggestion to “not to use [credit cards]” is sage advice. Or, as he says, “use them, but pay them off in the interest free period”.
Other things you can do that may reduce the burden include:
- See if you can find another bank or financial institution with lower credit card rates.
- Ask your bank to reduce your rate. Big banks won’t typically make such an offer, but some may be willing to take your circumstances into account.
- As a rule, use credit only for purchasing assets (cars, house, etc). If possible, do not use credit for ‘consumption’ purchases (food, petrol, etc).
If you’re struggling, seeking the advice of a registered financial planner may be beneficial.
Did you rack up some extra credit card debt over Christmas? Have you compared your interest rate to others? Let us know via the comments section below.
Also read: Credit card rewards devalued with new changes
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I will never understand why people use credit cards and don’t pay the full balance every month. It’s a great convenience tool. But NOBODY should be running up credit card debt. The interest rates are high. There are far better ways to borrow. And sensible people simply stop buying when they can’t pay their bills. They cut their spending. They spend less than they earn. It really isn’t hard.
I keep hearing how tough it is for young folk wanting to buy a home. Well, my husband and I bought one on a single basic wage, with a special needs child costing a mint in medical bills (and no NDIS or carer allowances back then!). It cost 7.5 times our wage (for a very humble run-down 30 yr old two bedder in a country town) and the interest rate was 7.5%. We had a minimal deposit, and within 3 months of moving in we had to replace all the windows in the back and do major renovations to satisfy the lender’s conditions.
We set aside enough money every payday to cover the mortgage, rates, electricity, water, phone, and other fixed costs, plus 5% contingency. We put a small amount aside every week for personal spending, Christmas expenses, and other gifts. The balance we kept in cash and made it last until the next payday. Sure, it was tough at times. But we never even considered using borrowed money for non-essential spending. It’s just dumb! And nobody will ever convince me there’s any need for it.
People who have credit card debt should cut their cards up and use cash. When the weekly allowance is gone, it’s gone. There’s no temptation to overspend and there’s no debt to worry over. Just makes plain common sense.
We are probably preaching to the choir here as the demograph who are members of this forum would’ve grown up when there was no such thing as a Credit Card (other than the American American Express and Diners Card that never really got accepted within Australian until the Bankcard arrived) and it was either pay cash, open a trading account with your merchant or go without.
I always endeavour to “over fill” my Mastercard so that my purchases don’t actually use the credit function. (Any interest that could be earned in my general account is so nominal that it makes no difference there.)
Hence even if I am otherwise occupied and unable to pay off my Mastercard expenditure, it rarely enters the debt and I have incurred no interest charges.
I looked at the option of the Annual Fee Mastercard with my service provider and as it is many times what I generally incur in interest charges, it would be a waste of time and I stay with my no annual fee account.