Why our $6.3bn Black Friday binge will leave painful hangovers for some

Consumers who have spent big over the Black Friday/Cyber Monday weekend may be waking up this week with a financial hangover, as much of the predicted $6.3 billion spend for the four-day period was likely racked up on credit cards that many will struggle to pay off.

Applications for credit cards were already rising before the Black Friday sales weekend, which marks the start of the Christmas spending period, as consumers look for short-term fixes to cost-of-living pressures.

Black Friday marks the start of the festive season spending period, but it can be easy to get in over your head.Credit: Louie Douvis

Comparison site Mozo commissioned a survey of shoppers that found 41 per cent were planning to pay for their Black Friday purchases with a credit card.

More than a third of those surveyed who said they were planning to pay with a credit card said they usually do not pay off their credit card balance, in full, every month, leaving them paying an annualised interest rate that can be more than 20 per cent.

Despite the drop in popularity of Buy Now Pay Later (BNPL) accounts, 22 per cent said they will be using this method to pay their Black Friday purchases, with the remainder of survey respondents saying they would be using a debit card to make purchases.

“It can be easy for consumers to rack up debt with credit cards and BNPLs, without fully realising the total debt that is owed,” says Mozo spokesperson Rachel Wastell. That includes those who may be using a credit card to pay off their BNPL debts, she says.

BNPL providers do not usually charge interest; though they usually charge a late fee if you miss a repayment.

Figures from comparison site RateCity show Black Friday shoppers who used their credit card, and who have up to 55 days interest-free, will need to clear this debt sometime between December 19 and January 18, depending on their billing cycle.

This assumes they do not already have a debt on their card. Shoppers who cannot clear their credit card bill in time are likely to be up for interest charges.

If a person puts $2000 worth of Black Friday shopping on their credit card, and paid just $100 a month to clear this debt, it would cost them $302 in interest and take them just under two years to repay the debt, in full. This does not include the annual fees the card may have, if any.

Nearly a quarter of shoppers said they will be using BNPL services to pay for their Black Friday purchases.Credit: Louie Douvis

RateCity calculations show if a cardholder pays just the minimum required, at 2 per cent, it would take them 17 years to pay off, and would see them pay $3000 in interest charges.

Mozo’s Wastell says if you are shopping with a credit card during the festive season, you should think about how much you can afford and be familiar with the terms and conditions, such as the interest rate of your card.

“If you are paying double-digit interest, it’s time to look around for a better deal as there are more than a dozen cards with interest rates under 10 per cent,” she says.

Joanne Hunt, financial counselling manager at the Financial Rights Legal Centre in Sydney, says many people turn to credit cards to help shore up their finances, particularly those who have come out of their fixed home loan interest rate onto a much higher rate.

“Naturally, they are turning to their credit cards to help pay for their everyday expenses,” Hunt says.

She says the ubiquitousness of BNPL, where you can see something on sale and within minutes can apply for an account and buy the item, is particularly appealing to younger consumers. Drawing up a budget and sticking to it are the keys to most people getting their finances back on track, she says.

“If you can’t make your budget balance it may be time to make difficult decisions and a conversation with a financial counsellor might help,” she says.

Anyone who is struggling financially can call the National Debt Helpline on 1800 007 007 to get free advice.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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