Whangārei budget mentor Shannon Phillips is advising Northlanders to use alternative financial lenders than to rely on their credit cards to pay off household essentials.
Whangārei budget mentor Shannon Phillips is advising Northlanders to use alternative financial lenders than to rely on their credit cards to pay off household essentials.
Watch your credit card spending in particular, Northlanders, as tougher economic times with recession, possible jobs losses, and even higher interest rates will make for a tricky situation.
The warning from leading economist Brad Olsen comes after it was revealed that Northlanders spent a whopping $2.6 billion on their debitand credit cards in the 12 months to September last year — slightly up from the preceding 12 months.
Infometrics analysis of Marketview data shows the $2.6b spend in Northland represented an increase from the previous year of 8.2 per cent which was higher than the national growth of 7 per cent and above the rate of inflation.
No data is available specifically on credit card spending over that period, but Olsen said Northlanders must keep a close tab on their credit card debt.
“This continued rising spending backs up the rising credit card demand in Northland, as people continue to spend. But with interest rates rising, there’s a clear word of warning for those that are taking on credit card debt,” Olsen said.
“It’s expensive, and best avoided, particularly for non-essential costs, and heading into tougher economic times with recession, possible jobs losses, and even higher interest rates will make for a tricky situation. Getting on top of credit card debt should be a top priority for 2023.”
A separate set of data from Equifax New Zealand shows the December quarter credit card demand in Northland was up 24.8 per cent, broadly in line with New Zealand-wide results at 25.4 per cent.
“The December 2022 quarter saw a return to more normal credit card appetite, after the lockdown conditions of 2021. The return of travel along with the festive season, likely drove higher demand for cards as a key payment tool for lower value purchases,” Equifax managing director Angus Luffman said.
While card spending was up in the December quarter, mortgage and personal loan demands were down 24 per cent and 15 per cent for the December quarter.
Luffman said the decline in mortgage demands was broadly in line with the national result at -27.4 per cent as home buyers continued to remain cautious about taking on new lending with potential further reductions in home valuations, along with future Official Cash Rate increases, tightened regulation and broader cost of living impacts.
Likewise, he said a decrease in personal loans reflected higher cost of living that impacted affordability and general economic uncertainty have led consumers being cautious about larger value discretionary goods or purchases.
Olsen echoed comments by Luffman, saying inflation was stronger in provincial areas like Northland. He said overall spending by Northlanders remained high, with a larger population, strong employment, and still-high inflation.
Senior economist Brad Olsen has warned Northlanders to watch their card spending in light of high cost of living and inflation. Photo / Jenny Ling
Further interest rate rises this year would compound the drops in mortgage interest as some possible borrowers could no longer afford to take on the level of debt and repayments required and would not get finance from lenders, he said.
Whangārei Budgeting Services budget mentor Shannon Phillips said credit cards have always been an easier access for people who had hit rock bottom to pull them out but such modes of spending often became a long-term problem.
“It’s a Catch-22 for some families on whether to pay off their mortgage or put food on the table and they opt to pay off their home loan. An increase in hardship means people are using their credit card to pay for essential goods that ordinarily come out of their normal budget,” she said.
Phillips said instead of opting for high-cost lenders, Northlanders should utilise companies that offered interest-free and fees-free vehicle loans up to $7000, also debt consolidation up to $15,000. Applications can be done online.
She advised people to review their bank statement transactions to recognise spending patterns and to create a budget to get a good overview of their financial position that included yearly costs.
While most people were okay financially between pay cheques, she said it became tough when the yearly bills came in like vehicle maintenance or dental bills that they made hasty decisions to use their credit cards.
Nga Tangata Microfinance has a fees-free and interest-free Get Control Debt Relief Loan of up to $3000 to help pay off high-interest debt while the GetAhead Asset Building Loan of up to $2000 can assist with buying essentials.
Phillips said these were alternative financial lenders most people were unaware existed.
Tips on minimising use of credit cards:
Look at finance options with the consolidation of multiple debts into one repayment, or those interest-free loans
Tap into grants for dental of up to $1000 through the Ministry of Social Development.
Talk to a financial mentor who can connect people with charities, community organisations or funding grants for help as an alternative to borrowing or using credit cards.
Do not apply for finance where the lender offers you a credit card instead of a loan as once the balance is repaid the credit card is still available to use and usually the credit limit is increased.
If you are facing financial hardship, contact your creditor before you default on repayments.
