‘Don’t undo good work’ warning as Aussies return to credit cards for festive spending

Australians were getting their finances in order during the height of the coronavirus pandemic but this bad habit has re-emerged.

Australians used the turmoil of 2020 to hammer their credit card debt, but the lure of festive shopping curbed that discipline, prompting them to once again pile it on the plastic.

Reserve Bank of Australia data released on Tuesday showed credit card spending in November – a month full of sales events including Click Frenzy, Black Friday and Cyber Monday – rose by 12 per cent from the previous month.

Compared with November 2019, credit card spending was only 1 per cent higher, however.

The most notable trend was the increasing use of debit cards as people moved to online shopping, with a 6 per cent increase month-on-month and a 21 per cent increase year-on-year.

“With the economy bouncing back from a recession and every state out of lockdown, Australians felt comfortable enough to splash some cash,” RateCity.com.au research director Sally Tindall said.

Shoppers flocked to Melbourne’s Bourke Street Mall for Black Friday sales in November.

“While this bump in spending is great for retailers, credit card holders should not get complacent, with debt-accruing interest rising for the first time in almost two years.”

In the past year, Australian households have smashed their credit card debt, wiping off more than $7bn and closing almost one million accounts.

At the same time, the popularity of buy-now-pay-later services continues to rise.

Ms Tindall said services such as Afterpay had forced credit cards into a downward spiral since the start of 2018.

“With no complicated sign-up process, no interest charged and no fees to pay if you meet your instalments, the buy-now-pay-later industry is likely to keep on luring customers away from credit cards,” she said.

Australian households closed almost one million credit card accounts in the past year. Picture: Lou O'Brien/Sunshine Coast Daily

“Most of the key players in the credit card space have made moves into the buy-now-pay-later industry, knowing that credit cards are unlikely to make a comeback in their current form.

“That said, platforms like Afterpay can still catch people out, especially during marketing stunts, such as sales where there’s a time pressure to buy.

“ASIC (the Australian Securities and Investments Commission) found one in five users were skipping essentials and missing bill payments as a result of overspending on these platforms. That’s not a good outcome.”

Canstar finance expert Steve Mickenbecker said the COVID-19 pandemic had been a period for tightening up household finances for many Australians.

“Opportunities to spend have contracted as a result of the lockdowns, and a part of the $36bn early release of superannuation has found its way into credit cards, extinguishing stubborn debt,” Mr Mickenbecker said.

Online shopping event Click Frenzy is proving increasingly popular with Australian shoppers.

“The modest November increase in debt should not surprise, leading into Christmas and coming off a bumper Black Friday and Cyber Monday.

“We may have expected a bigger increase. The bigger picture remains one of restraint, hopefully a trend that is sustained.”

Mr Mickenbecker said there might be a glimmer of hope for the banks in the data for their credit card businesses, but it would not be good for consumers to return to stubborn debt and impulse spending.

Ms Tindall agreed, saying all that good work should not come undone.

“Anyone who hasn’t yet cleared new debts from the sales in late November will need to act quickly,” she said.

“Do everything you can to clear your debt in full. That way you’ll avoid paying interest and keep hold of your interest-free days.”

Originally published as ‘Don’t undo good work’ warning as Aussies return to credit cards for festive spending