Plastic not always fantastic

By REBECCA WALSH

Before you pop it on the plastic - can you pay it back?

Credit cards, attractive for their convenience and loyalty schemes, are being used to pay for anything from major electrical appliances to supermarket shopping.

"Credit cards are the best and worst thing for consumers," says Simon Wilson, acting chief executive of the Consumers' Institute.

"If they are used well and paid off every month they are the best way to spend money. You get free credit for 55 days on most cards and you're not paying a cent for that credit. But if you don't pay off the money you are paying more for credit short of any other source than a loan shark."

Credit card use is on the rise in New Zealand. Figures released mid-year show outstanding advances on credit cards - debt not repaid within the allowable interest-free period - have risen by 56 per cent in the past three years and are expected to top $3 billion soon.

At the same time, Baycorp Business Intelligence data indicates personal loans are less popular and there has been little growth in hire purchase deals.

Beth Cherry, coordinator of Combined Churches Budgeting Services in Blockhouse Bay, Auckland, says the service is seeing an increasing number of people who have jobs and mortgages but have been "unwise in handling their credit".

One young family living on a student benefit and unable to pay their food bill started using a credit card to pay for everything.

"They misheard or misunderstood about a particular credit card and thought if they used it for everything they would get a rebate. Now they can't even meet the minimum repayments. They have dug themselves into such a deep hole I don't know how they will get out of it."

Mr Wilson says increased credit card use extends across the community and has been fuelled by lower interest rates, loyalty schemes, convenience, acceptability and that they are safer than carrying cash.

"People are now using their cards for everything they can. The big change is they are now using them at supermarkets and for electronic purchases such as on the internet."

Where the money goes

The latest annual Household Economic Survey results show that for every dollar spent:

* Housing accounted for 24c.

* Health, education, finance and other services took 17c.

* 16c was spent on transport.

* 16c went on food. Meals away from home and ready-to-eat foods accounted for 23 per cent of all food expenditure. The survey noted that spending on food rose 9 per cent to $125 a week.

* 13c went on equipping the home.

* 11c was spent on books, tobacco, computers and other personal items.

* 3c went on clothing and footwear.