Shoppers planning to spend big in the Boxing Day sales are being warned to create a budget and keep track of their spending, particularly if paying with a credit card or buy now, pay later service.
It’s estimated Australians will spend a record $21 billion in the post-Christmas sales through to mid-January, according to the Australian Retailers Association, despite the surge in Omicron COVID cases.
Credit card debt has plummeted this year, however, the silly season is traditionally a time when people rack up debts they can’t repay.
RateCity.com.au analysis of the latest RBA credit card statistics show Australians paid $250 million in interest in just one month on $17.08 billion of credit card debt.
While the number of credit card users has been on the decline since 2018, there are still more than 12.4 million accounts in Australia.
However, it’s not just credit cards stinging shoppers. A RateCity.com.au survey of 1000+ people found 55 per cent of BNPL users had gotten into some level of financial trouble at least once using these platforms. This percentage is made up of people who were impacted by one or more of the following:
RateCity survey: how BNPL is causing financial strife for some users
Note: some respondents selected more than one option
- 25% cut back on essentials like meals.
- 25% were late to pay bills (mortgage, rent, phone, utilities).
- 22% borrowed money from friends or family.
- 24% had paid BNPL late fees.
- 17% had gone into overdraft.
- 11% took on extra work to cover repayments.
- 13% took out a loan to cover costs (personal loan/credit card).
- 8% had their accounts temporarily suspended.
RateCity.com.au research director, Sally Tindall, said people should plan ahead before shopping in the sales.
“Before you hit the shops, whether that’s in-store or online, check your bank balance and any outstanding debts so you know how much you can afford to spend,” she said.
“Don’t get carried away buying things you don’t need and can’t afford. Write out a list ahead of time and try not to get distracted.
“While the Boxing Day sales can be a great time to stock up on essentials, if your funds are low, you might be better off heading for a swim instead of the shops.
“Anyone using credit cards or buy now, pay later platforms in the sales need to be particularly careful not to spend more than they can afford to repay.
“Buy now, pay later services might be interest-free, but overspending on these platforms can lead to all sorts of problems.
“If you can’t afford to pay the bills or buy essentials such as food, then you might want to rethink whether your buy now, pay later accounts are causing more grief than they’re worth.
“Similarly, if you’re planning to put your shopping on a credit card, make sure you can pay the balance in full when your next bill comes in.
“Don’t head into 2022 struggling to pay the bills because you’ve overspent in 2021,” she said.
Tips if you are planning to use a credit card or a buy now pay later service in the Boxing Day sales:
- Set yourself a strict spending limit before you hit the shops.
- Don’t impulse buy. Stop and think “do I really need this?”
- Make sure you have enough money to pay your debt back before you get stung with fees or interest.
- If you’ve overspent, don’t be afraid to return some of your shopping.
Common buy now, pay later traps:
- Impulse buying – buy now, pay later platforms often encourage customers to keep shopping. Try and stick to buying things you actually need.
- Falling into overdraft – repayments on most platforms are automatic, which means if you don’t have enough money in your account you could end up going into overdraft with your bank.
- Running out of money at the end of the month – ASIC found over a 12 -month period, 20 per cent of users didn’t have enough money to pay for essential items because they overspent.
- Using more than one platform at once – ASIC found people getting themselves in trouble were often using multiple forms of credit at once.
Common credit card traps:
- Not paying your balance in full every month – if you don’t pay your entire bill, you’ll lose your interest-free days and get hit with interest charges.
- Spending more to get points – if you’re spending more just to earn rewards points then your credit card might have gotten the better of you.
- Paying just the minimum – you could end up on a debt treadmill and have to fork out hundreds in interest.
- Using your entire credit limit – just because the bank has approved you for $10,000, doesn’t mean you should spend that much.
Note: The Boxing Day spend forecast is based on combined research from the Australian Retailers Association and Roy Morgan.