The risk of big spending

The latest household spending figures from the Bureau of Statistics show the reopening of the economy is seeing us spend more. February alone saw a 20% increase in money spent on clothing, with spending on recreation (up 18%) and dining out (16%) not far behind.

At the same time, we’re also seeing an upwards trend in credit card debt.

Recent years have focused plenty of attention on ‘buy now pay later’ (BNPL). But this still only accounts for around 2% of the value of debit and credit card purchases. What we hear less about is the $17 billion owed in credit card debt – a figure that has steadily ticked up over the past few months.

Credit cards are still popular in Australia, with close to 14 million active cards nationally. And while they can be useful, many cards come with double-digit interest rates. This highlights the need to manage card spending carefully to avoid being lumbered with solid interest costs – or overwhelming debt.

Research by Finder shows close to two out of five (37%) credit card holders have engaged in what it calls “concerning credit card behaviour” in the last 12 months.

One in seven cardholders have fallen into the trap of using the plastic to make impulse buys. One in ten admit they have totally maxed out their credit card. And the same proportion say they have never checked their card statements.

These may sound like small figures. But Finder reckons that all up we’re talking about 3 million Australians falling into expensive card habits.

Following some basic rules makes it easy to avoid getting into financial hot water.

One way to avoid the temptation of overspending is by getting a card with a low credit limit – one you can afford to pay off each month before interest charges apply. Better still, stick to using your debit card at the check-out.

Importantly, make a habit of checking your monthly card statement. Data from the Australian Payments Network shows a 9.2% rise in fraud on payment card transactions last financial year. If you see an unfamiliar transaction, get in touch with the card issuer immediately. If you get onto it early, the transaction can be reversed so you’re not left paying for a fraudster’s spending.

Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.