Shoppers have been warned of the perils of “debt hangovers”, which can often follow the exhilaration of scoring bargains at Boxing Day sales, with further interest rate hikes on the horizon.
It is estimated consumers will spend about $23.5bn on post-Christmas sales between Boxing Day and January 15, with clothing purchases tipped for a massive spike, according to the Australian Retailers Association.
Experts claim a surge in personal credit card interest across January and February in 2022 suggests a repeat for the New Year.
A RateCity analysis of RBA credit card statistics revealed accrued credit card debt reached $17.4bn in February, but that figure dropped by $558m in the eight months to October.
Shoppers have to consider how a “silly season splurge” may affect their household budget as further interest rate rises loom, RateCity research director Sally Tindall says.
“Nabbing a bargain might be fun, but the debt hangover it can cause can have serious repercussions,” she said.
“The Boxing Day sales can be a good opportunity to stock up on things you need at discounted prices, but they also have the capacity to leave your budget in tatters if you’re not careful.
“If you are planning to hit the shops, write out a list of things you need, set yourself an iron-clad budget and keep a running tally of how much you have spent.”
AMP chief economist Shane Oliver told NCA NewsWire the impact of rising interest rates will be felt by more people in the New Year.
“We’ve seen a very sharp rise in interest rates over a short period, and that’s going to cut into people’s spending power, particularly if they’ve got a mortgage,” he said.
“It’s mainly an issue for younger people in their late 20s, 30s and 40s who still have big mortgages and are more likely to struggle to make their payments.
“They will be looking at their expenses and might try to cut back spending.”
The average Australian mortgage of around $500k would require annual interest payments of about $11,000 or higher to maintain as rates rise, Mr Oliver said.
He said many people with mortgages had been largely unaffected by hikes so far due to having fixed rate loans, but that many would “roll off” onto the current rates in coming months.
“As the year goes by, we will see more people roll off fixed rate mortgages, which are down around two per cent, onto higher rates, which is sometimes called the ‘fixed rate cliff’,” he said.
“It’s quite likely that some people who run into strife servicing their mortgage might run up more credit card debt, compounding the problem.”
Retailers were aware they would be in for more “tough times” following the post-Christmas rush, as people cut back their spending, Australian Retailers Association chief executive Paul Zahra said.
“At some point this year we will see sales start to slow, decline even, and that’s what retailers are preparing for,” he told Sky News.
He said clothing sales would soar by nearly 12 per cent at post-Christmas sales.
“We’ve been in a permanent state of disruption; clothing has done it particularly tough because we’ve had an unseasonably cool summer,” he said.
“That is not great for retailers, but it’s fabulous for consumers, because they’ll expect to see deep discounts and lots to choose from with sizes and colours.”