Because of the level of debt, quite often the only solution is a no-asset procedure or bankruptcy.Marjorie Iliffe, Tauranga Budget Advisory Service manager
Demand for credit cards is on the rise again after two years of decline but financial experts are warning they could end in bankruptcy if misused.
Baby boomers and Generation Y have resumed their spending sprees, with demand for credit cards and mortgages on the rise after two years of falling demand, according to credit bureau Veda.
Customer credit card inquiries were up about 11 per cent in 2011 compared with a year earlier, with baby boomer inquiries showing a sharp rise of 24 per cent - something Veda attributes to more customer confidence in the economy.
New Zealanders owed $5.7 billion on credit cards in December - an increase of $151 million on the previous December.
And Tauranga Budget Advisory Service manager Marjorie Iliffe said the service saw at least one person a week go into bankruptcy because of credit card debt.
"The clients we have who have multiple credit cards all at their maximum usually have to end up going bankrupt, because they just can't keep up with it.
"The situation we see is the clients' money is not enough to go round so they get a credit card, start buying stuff on that, it gets to its max and then they get another one. Because of the level of debt, quite often the only solution is a no-asset procedure or bankruptcy. There's no money to negotiate with."
Mrs Iliffe said it was far too easy to get a credit card - she knew of beneficiaries and people with Baycorp and bank debt who had more than one card.
She urged anyone in credit card debt to seek help from Budget Advisory Service or approach the credit card company before the card was at its limit.
"Talk to your creditor first, tell them you have a problem.
"Get help early rather than later. Don't wait till it's maxed out. Come and get some advice, maybe we can help them negotiate.
"We usually get them too late, when they are maxed out. We don't see them when they are first struggling or asking 'I'm thinking of doing this, can I afford it?'," she said.
Brian Berry, a director of Rothbury Financial Services in Tauranga, said the key to effectively using credit cards was paying them off in full every month.
Combining credit cards with a revolving mortgage could be an effective way of using the cards to get the advantages but not the pitfalls - but only if the cards were paid off in full every month.
But, Mr Berry said, it was a concern if people were using credit cards and not paying them off.
"If they have got a relatively high monthly commitment to pay, and they only pay the minimum amount required, then they are never really going to have any real impact on repaying it."
Credit card debt could have ramifications when it came to applying for a mortgage.
"Banks don't like to see a lot of short-term debt, especially when people may have a low deposit."
To pay off credit card debt, Mr Berry suggested giving up luxuries and instead using that money to pay off the debt.
People with several credit cards could speak to their bank about consolidating all the balances owed into a personal loan.
"They could get a structured loan in place, where they can pay it off and keep things under control.
"If they have got a mortgage, they can potentially get a top-up on their mortgage [to pay off the debt at a lower credit rate]."
If people wanted to retain a credit card for convenience, Mr Berry suggested having only one, with a nominal limit of $500.
Jackie Gower of the Simple Savings website believed increased demand for credit cards was due to people having more faith in the economy and feeling more optimistic about their personal finances.
"There may still not be enough money in the kitty to pay cash but people are feeling more confident about their abilities to pay off loans, hence the increasing number of credit applications.
"While this is totally understandable after a rough few years, I think that people should still be very wary of running before they can walk."
Most people did not have the discipline to successfully manage credit cards and ended up in debt, she said. "At the end of the day, it's always better to save up and pay cash for the things you want."
When it comes to reducing credit card debt, Mrs Gower said Simple Savings website members used all sorts of tricks (see panel).
"It doesn't matter how you do it, as long as you do it."
Mortgage inquiries have risen about 13 per cent from 2010, with Gen Y leading the generational breakdown, up 25 per cent. with APN