Big drop in credit card use as savage cuts loom
CONSUMERS are radically cutting back on their spending on credit cards as they brace themselves for a tax and income squeeze in the new year.
Statistics from the Central Bank show that spending on credit cards is now more than one-tenth lower than it was earlier in the year, as households pare back spending in preparation for cuts and tax hikes to take effect in January.
Cardholders also continue to make efforts to pay down their debt. The latest figures showed that consumers paid off €133m more than they spent on 2.1 million personal credit cards in October, as they attempted to get to grips with card debt.
Income tax is due to rise and social welfare payments will fall from January 1 as the savage measures in Budget 2011 are implemented.
Families with young children are set to be €3,000 worse off next year because of this month's Budget.
The changes in income tax alone will suck almost €1,250 out of the pockets of a household on the average family income of €55,000.
On top of this, the family will be down heavily from cuts in child benefit. If the family has three children who still get child benefit, the hit will come to €480 a year from the reductions in this benefit.
Those families that are providing for their future by investing in a pension will end up having to shell out an additional €300, assuming they want to keep putting 6pc of their salary into a pension.
This is because those paying into a pension will now have to pay PRSI (pay related social insurance) and the new universal social charge (a combination of the old income and health levies) on the money going into their pension.
Households will also be hit by higher petrol and diesel prices, in a move that will cost the average driver around €72 a year.
Personal finance experts said yesterday that one of the main ways families were preparing for what would be a tough financial year was by cutting back on spending on credit cards and paying off existing card debt in bigger chunks.
Some €727m was spent on credit cards by consumers in October.
This compares with almost €1bn in spending on cards in some months in 2009, according to the Central Bank.
A year earlier, personal credit card holders had been spending 11pc more on their cards.
Consumers also pumped €800m into their credit card accounts in October in an effort to reduce their card balances.
New figures for November are due out later this week, but the October figures show that consumers still collectively owe €2.82bn on their 2.1 million credit cards.
The overall amount owed by consumers on their cards is down just €100m on the figure for the same month in 2009.
This showed how stubborn credit card debt was, personal finance experts said.
This was borne out by recent research from iReach, which showed that almost 100,000 people were three months or more in arrears on their payments on unsecured debts such as credit cards, overdrafts and credit union loans.
And of those who have missed payments, some 32,000 people owe more than €90,000 on their personal loans, credit cards and catalogues debts.
The survey gave the first true glimpse into the extent of non-mortgage debt.
Credit cards bills are the most prominent of the unsecured debts, with eight out of 10 people owing money on them, according to the research commissioned by new debt advise company the Debt Advisory Centre.
The survey of 1,000 adults was conducted by independent market research company iReach.
It found that some 2.8 million people have some form of unsecured debts, with 240,000 people having missed at least one payment.