Maxed out

While retail is floundering, manufacturing is dying and new housing credit is falling we note that Australians are still maxing out their credit cards, and when they have, they are just getting a new one.

Australians have racked up a record $48.8 billion in debt on credit cards while banks wring hard-pressed families with interest rates higher than we have seen for nearly 20 years.

According to new figures, Australians are sinking into record levels of credit debt, often being lured to spend more with bank loyalty programs or special offers.

We now collectively owe close to $49 billion, having been approved for 14.8 million credit cards — more than ever before.

More than two-thirds of this bill, or $35.5 billion, is accruing interest every day at an average rate of 19.7 per cent per annum — near a 20-year high, according to the Reserve Bank of Australia, which collates the figures.

Just so we are clear, that is approximately $3300 for each of those 14.8 million cards and approximately $2200 of credit card debt for every single Australian.

With retailers complaining about Christmas trade, you do have to wonder where all that debt is going. It is well know that mortgages deliquencies are on the rise, and a fair sign of someone in mortgage stress is a steady increase in credit card debt, as their income cannot cover the living expenses. The new year is usually the time when the problems appear, as we said back in December.

What is worse for these number is that it is Christmas time. The time of year when the indebted grit their teeth and attempt to put on their best Christmas for their kids and to keep up appearances for their family.

Who wants to turn up at Christmas dressed in a Scrooge or a Grinch outfit? Showing signs that their financial position is about to explode in their face. People put on a happy face while hoping for a christmas miracle come new year.

The problems actually begin to appear in January, when the reality of the debt slaps people in the face. The Christmas costs appear and the credit card bill is received in the mail.

And the article has some amazing examples of this.

“Banks and other lenders design credit cards to get people in debt, and try to focus their mind on things other than the fact they are in debt. They make them think about reward points and special offers and the like.”

CEO of Christian Oey said: “Our inquiry rate has doubled since this time last year. Usually we don’t start to pick up the pace until February, when people get their credit card statements after Christmas.”

Mr Oey said the average debt was much higher this time around. “Our average already is about $90,000 per client on credit cards. One client owes $560,000 on credit cards. Some clients have 25 accounts,” he said.

“You’ve got to ask why the banks keep lending.”

Yes you do.

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  1. Australia's skyrocketing housing and consumer debt has conveyed no benefit to most Aussies. Yes the exponential rise in credit gives a temporary boost to GDP but it actually lowers productivity as money is siphoned away from productive enterprises and into paying interest on consumer crap and overpriced houses. Just look at the charts in this link…..

    Housing and Debt Charts

    ….. to see where this debt money is going! The majority of this debt is simply wasted money, sent to foreign lenders, damaging Australia's future. What sort of a mess are we leaving for our children? Why are we so addicted to debt and the housing and asset bubbles that causes?

    Andrew B
    Australian Housing Crash Forum

  2. "You've got to ask why the banks keep lending."

    Because otherwise the banking and housing cluster*uck we have now would tear itself apart?

  3. Birch Creek Trader

    Look, I also knew that Australians are addicted to debt, with a 160% household debt to GDP ratio being almost the largest in the world, and an enormous wasteage of disposable income going into servicing mortgages for houses we buy off each other (which add no productive capacity – sorry Mr Joye, you are dead wrong there), but this:

    "More than two-thirds of this bill, or $35.5 billion, is accruing interest every day at an average rate of 19.7 per cent per annum — near a 20-year high, according to the Reserve Bank of Australia, which collates the figures."

    You've got to be f%^&ing kidding me?!?! We spend $35 billion a year on interest on credit cards? Is this figure correct?

    That is enormous – an enormous waste of income, an extremely poor allocation of capital and a big "DANGER" sign posted over our economy's door….

    I can't believe people are that stupid (although there are some out there) – have we allowed ourselves to get that far into debt because we are stupid, or greedy, or have we been hoodwinked.

    For disclosure, my wife and I have a $6000 credit card. It rarely gets above $4000 a month, and paid off at the end of each month and hence we have not paid interest on it. EVER.

  4. Birch Creek Trader: "For disclosure, my wife and I have a $6000 credit card. It rarely gets above $4000 a month, and paid off at the end of each month and hence we have not paid interest on it. EVER. "

    You shouldn't pay off your card. Transfer the balance to another card and you can extend your interest free period. In the meantime, put your money in a savings account. Over a year you can earn a few hundred of dollars extra in interest.

  5. Some of us remember, not so long ago, that Banks in one their rare and much publicised events of generosity made a unilateral offer to drop the minimum payment, on credit cards, from 3% of the monthly balance to 2% of the balance.
    Lets look at what this achieved:
    A C/C balance of $3000 originally 3% minimum per month. If the card was cut up and the minimum paid every month the card would be paid off, lets say 18% interest rate, in approximately 5.5 years.
    Now with the banks very generous offer:
    A C/C balance of $3000 now 2% per month minimum. If the card was cut up and the minimum paid every month, the card would be paid off,
    lets say 18% interest rate, Drum Roll 16.6 year. A life time of servitude.
    These figures may vary but you get the gist of what the banks were trying to do.
    "Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.~ Norm Franz

  6. "I can't believe people are that stupid"


    Seriously. People are way stupider than you think!

  7. Maxed Out (Hard Times, Easy Credit), by James D. Scurlock. Very American cerntric, it does touch on many other parts of the world, very applicable here too. Made me understand how many people can collectively achieve $48.8 Billion in CC debt.

    With $35.5 Billion making interest! That's the part that flipped me backwards.

    I remember not too long ago Australians were holding $38 Billion in CC debt. In July 2009 (I can't remember if it was up to July 2009, or just that month alone), Australians (not including many in this blog) took out a whopping $1 Billion dollars in credit card cash advances. Many thought there was nothing to worry about with that but, I always thought, how dire must one be if they can't wait a few weeks for their pay day.

    I really hope people aren't making mortgage payments from their credit cards, whether directly or indirectly (cash advance).

    I have seen too many people quite recently have anywhere between 4 to 7 credit cards rejected at the check out. And a few times where things like if the bill came to $90.00 at the check out, the customer would request "…can I give you $10.00 in cash and $80 on credit card?…"

    For some insight into this bizarre world.

  8. It's because were stupid and greedy,
    that we have been easly hoodwinked.
    I'd love to find the psychological reason's
    we've become so indebted, why are we wanting
    so much? but there is things like, if i want to
    build a one bedroom simple home, im actually not allowed because council's stipulate that the building has to be over so many squares!
    A Russan Nurse up here,North Queensland,
    wanted a small loan from her bank to build a small steel fab home on a nice small block out side of town, but she had much difficulty because the bank would prefer her to get a much larger loan, $300K+ and build in town,they held out until she went looking elsewere, her loan was for under $100K-, it should not have been a hassle, this is why i do not understand our economy. I have always believed a persons riches are the fewness of their want's. It seems to be a crime if you want to save a dollar
    you can actually be made to feel some how inferior. I really feel if there was an advertising campaign to sell a sh*t sandwich people would buy them, that's how attuned we are to suggestion that we need it now.
    best wishes.

  9. Just a clarification – we're not *paying* $35B in interest, but rather, than much is accruing interest @ 19.7%. So the actual amount of interest that we are paying is about $7B.

    Yes, that is still stupid, and I'm with Birch Creek here – I pay everything using credit cards, and in 10 years I've only paid 5 cents in interest (should have been zero, but once paid a bill as a cash advance by mistake). I'm constantly amazed at friends that don't have enough savings to last out a single pay cycle before going back into debt.

    And note to CyrusP – you can't do that unless you get a new card every time – balance transfers (at least on any card that I've ever seen) are cash advances and accrue interest immediately. Only on a new card do you (sometimes) get interest-free balance transfers.

  10. I guess one issue is debt is not explained to the public properly.

    From my experience, a lot of people seem to think it's "excess" money that the banks lend out to people. You know, that $5k limit is because they trust me the customer with $5k of their money and to pay it back.

    That's sad, but only part of the story. The big issue is easy credit availablity + the daily sensory temptations. How many advertisements do we see every day? Gadgets, retail sales, expensive food, experiences. It's harder not to bite when you're not spending 'your money'.

    If the following was drilled into everyone's head during childhood money education, in addition to the Norm Franz quote above, things might be better – "Debt is sacrificing future income for satisfying today's desires, saving is sacrificing today's desires for future income."