‘Band-Aid on a bullet wound’: Credit card use up as cost of living hits

Cost of living pressures ramped up in early 2022 following the economic disruptions caused by Russia’s invasion of Ukraine and the effects of COVID-19. The inflation rate peaked at 7.8 per cent in late 2022 and remains around the 7 per cent mark.

Borrowers have also been hit by 12 interest rate rises since May last year as the Reserve Bank tightens monetary policy to reduce inflation.

ANZ economist Adelaide Timbrell said a trend during the COVID-19 crisis for consumers to reduce personal credit had reversed.

“As rents go up and the cost of other essentials goes up, people are more likely to be using credit to keep up with expenses,” she said. “We don’t expect this to be everyone, but we do expect it to be a rising share of people.”

Despite these trends, Ebstein said the amount of credit card debt accruing interest has been relatively stable, indicating most consumers are using their cards responsibly.

“Yes, the use of credit cards has got additional momentum, but the evidence so far is that they have been used prudently.”

‘Reaching for the credit card to put food on the table or pay an energy bill is like putting a Band-Aid over a bullet wound.’

Sally Tindall, from financial comparison firm RateCity

However, Sally Tindall, research director at financial comparison firm RateCity, said there is a danger that families struggling through winter under cost-of-living pressures will resort to credit card debt despite the very high rates of interest.

“Reaching for the credit card to put food on the table or pay an energy bill is like putting a Band-Aid over a bullet wound because it could make your finances worse by the very next month when the credit card bill comes in,” she said.

RateCity estimates the average interest rate on personal credit cards is 17.17 per cent.

There was a 30 per cent increase in calls to the National Debt Helpline in the four months to April 2023 compared with the same period last year. This included a higher number of callers who are experiencing financial hardship through cost-of-living pressures rather than a significant event such as job loss, marriage breakdown or death in the family.

“What counsellors have certainly seen over the past year is an increase in short-term credit in general – credit cards, personal loans and buy now pay later, with increasing numbers of people using BNPL to pay for essentials such as groceries, petrol or utilities,” a spokesperson for the helpline said.

“For someone with a credit card debt, we would strongly recommend people speak to a financial counsellor because with credit cards people do have options, like account closure and repayment plan, hardship arrangements or even waivers in limited circumstances.”

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