Kiwis appear to be falling back into the bad credit card habits last seen before the global financial crisis, putting themselves at risk should another shock occur, an economist has warned.
Figures put out by the Reserve Bank last week showed total credit card balances shot up to just under $6 billion last month - a record high for New Zealand.
Shamubeel Eaqub, principle economist at NZIER, said some of the rise could be attributed to an increasing population but what was of more concern was how much of the borrowing was interest-bearing debt.
Of $5.46 billion credit card debt held on personal cards in November, 66.9 per cent was being charged interest at an average of 17.6 per cent. That was up from 65.9 per cent in November 2012.
Taking business and personal credit cards together, the total outstanding advances for December last year was $5.997 billion, up from $5.765 billion in the same month the previous year.
Eaqub said during the recession, interest-bearing debt had stopped going up but it had started to increase again over the past year.
"People seem to be falling back into bad habits of increasing their mortgage and adding to credit card debt."
A breakdown in recent electronic card data also showed increased spending was being done on credit cards.
Eaqub said it was hard to pin down why it was happening but he put it down to people feeling more confident about their jobs and incomes, as well as some being forced into it with living expenses going up without an income increase.
"Households are feeling much more confident about their financial situation which means they are usually more confident taking on more debt."
But he said there was a "real concern" about people falling back into bad debt habits.
"The reason why we had such a deep and long recession that had taken seven years for us to get out of is because we went into it with a huge amount of debt."
In previous recessions New Zealand had been able to dig itself out faster by borrowing and investing. "But we haven't actually paid off that much debt. If we are going to accumulate more debt without having paid off [some] of it, if we have another down-turn, that has the potential to hit us hard again."
In November, the Reserve Bank noted its concerns about household debt continuing to grow faster than income.
"The household debt-to-disposable income ratio is once again approaching its historic highs. Interest servicing costs are at their lowest level in about 11 years, reflecting mortgage interest rates which, until recently, have been at 50-year lows.
"However, with fixed mortgage rates already starting to increase, and interest rate increases projected to occur in 2014, debt servicing costs can be expected to increase. Borrowers with high debt-to-income ratios could find themselves increasingly stretched to meet their debt commitments."
The Reserve Bank has focused on slowing the housing market with its loan-to-value ratio limits.
Eaqub said that was because mortgage debt was much higher that other types of debt at around $188 billion.
"The largest stock of debt tends to be in mortgages. Consumer debt is secured against income while housing debt is secured against property."
If property prices fell while people had high mortgage debt they could lose if forced to sell. But he warned credit card debt attracted punishing interest rates.
"It's very easy to become trapped by a small amount of debt."
Eaqub said people should use their common sense when it came to taking on debt.