3 million Australians have made the same mistake as Jen this year

A new report has found that roughly three million Australians have done the same thing, as cost of living soars, and it could lead to a debt crisis.

A single mum who ran into financial difficulty and turned to credit cards to get by racked up a staggering six-figure debt, in a trend experts warn is on the rise.

Jen* hit a financial brick wall during the Covid pandemic when she lost her job and said credit was her only real means of getting by.

Before she knew it, the mother-of-one was in a deep hole and owed more than $100,000 across a variety of cards.

“It was a constant struggle and a constant stress,” she recalled.

The single mum ran into financial difficulty during Covid and her problems spiralled.

She eventually found work but her wage was modest and her household expenses high, so she “kept shuffling money around” in a bid to keep her head above water.

Jen considered declaring bankruptcy but instead turned to a debt advocate Credit Reboot for help. The agency assisted her to negotiate reduced interest rates, altered terms and debt forgiveness.

In all, her total debt was more than halved. Debt consolidation simplified her obligations for the rest.

“Rather than be bankrupt and basically stuff my future and have to move in with my parents, I was able to keep up paying for a rental, find a job, and have some independence,” she said.

Thanks to negotiations and debt consolidation, Jen expects to be debt-free by this time next year.

Credit card expert Amy Bradney-George said it appears more and more Aussies are turning to credit cards as the cost-of-living crisis worsens.

More and more Aussies are turning to credit cards as a means of making ends meet.

A survey by financial comparison website finder.com.au found 15 per cent of respondents have taken out a credit card in the past year, Ms Bradney-George said.

That accounts to roughly three million people.

“Credit cards have become a financial crutch for a lot of people who would have previously only used one for emergencies,” she said.

“Mounting pressure on households is seeing Aussies borrowing money to keep afloat.”

The latest data from the Reserve Bank shows a definite upward trend in credit card usage, with a number of records broken in recent times.

Data shows an upwards trend in the total number of credit card transactions made by Aussies.

In September, cardholders made a staggering 308 million purchases in a single month, representing the largest number since the RBA began keeping records in 1985.

Transaction volumes cracked 300 million for the first time in July. Last year, the number of transactions in September was 291 million, while in 2021 it was 231 million.

The total value of purchases was also higher than ever in September, coming in at $34.7 billion in a single month.

Monthly spend nudged above $30 billion in mid-2022 and hasn’t dipped back. Before then, the figure was in the mid to high-20s range.

Total balances – that is, the amount cardholders collectively owe – is sitting at an eye-watering $41.1 billion.

How much Aussies spend on plastic and their total balances are both trending back upwards.

Ms Bradney-George warned that relying too heavily on plastic could see people “go into a debt spiral” – something that’s hard to bounce back from.

“If you’re regularly spending more than you can pay off on a credit card, the cost of interest charges can quickly add up.”

The finder.com.au research indicates younger Aussies are particularly eager to get their hands on a card, with 10 per cent of Millennial respondents and nine per cent of Generation Z respondents having secured one in the past year.

Tammy Barton, founder and director of MyBudget, said many Aussies are relying on credit cards for essential living expenses, as well as other financial products like payday loans and Buy Now, Pay Later.

“Some people are starting off with using one for an emergency payment or for an unforeseen expense, and then end up relying on them for basic living costs,” Ms Barton said.

The veteran budgeting guru isn’t surprised.

“With stagnant wages and the immense pressure of interest rate rises have put on Australian households, people are really starting to feel the pinch and feel financially stressed.”

Credit card debt is extremely expensive and typically comes with an interest rate three times’ higher than a personal loan.

While credit cards offer a quick fix, Ms Barton said they’re “not a viable long-term solution”

“Living off of or using credit, and particularly not paying it off in full at the end of the month, does mean that you are living beyond your means.

“Essentially, you are spending more than what you are earning. And that can eventually lead to people finding themselves caught in a debt spiral.”

Credit cards come with hefty interest rates – a current average of 17.9 per cent, according to the RBA. By comparison, the average rate of a personal loan is currently 7.7 per cent.

Families are struggling to make ends meet amid a worsening cost-of-living crisis.

As the festive season looms, she’s worried about households making their precarious financial positions even worse by spending more than they can afford.

“Christmas will no doubt be a more expensive and financially stressful one for many of us this year.

“For many Aussies, credit cards are their weapon of choice when it comes to festive season purchases.

“When January comes around, a lot of people will be staring down the barrel of post-Christmas credit card debt. Others will be wondering how to pay their bills, let alone save.”

Depending on someone’s financial goals, taking out a credit card and racking up debt could have long-term consequences, money.com.au credit card expert Brad Kelly explained.

“Because of the way the consumer lending works, your credit card impacts the amount you can borrow with a mortgage,” Mr Kelly said.

“The bank will say, ‘If you get rid of that $10,000 credit card limit, we can give you another $100,000 on your mortgage’. That can be the difference between getting a house and not.”

Aussies experiencing hardship can get free and confidential advice via the National Debt Helpline on 1800 007 007.

* Surname withheld for privacy reasons

Originally published as 3 million Australians have made the same mistake as Jen this year