Editorial: Caught in the plastic trap

According to the Reserve Bank, we're paying an annual $671 million in credit card interest, roughly $200 for every adult New Zealander. Photo / Duncan Brown

It seems Kiwis have become accustomed to living with high levels of debt.

Bay budget advisers this week expressed concern about the number of people seeking assistance because they were struggling with credit card debt.

Tauranga Budget Advisory Service co-ordinator Diane Bruin told the Bay of Plenty Times she had worked with a couple who had clocked up $54,000 on their credit cards to remodel their home. Their home was eventually sold in a mortgagee sale.

Some people are using their credit cards to gamble online. But others were using them to buy groceries, make payments for insurance, rates, power and car registration.

The service is seeing people who can no longer manage all their commitments because of total debt impacting on their disposable income.

The tragic stories emerging at the coal face reflect the massive amount of money being spent on credit.

According to the Reserve Bank, we're paying an annual $671 million in credit card interest, roughly $200 for every adult New Zealander, and 68.9 per cent of the outstanding credit card debt is interest bearing, which means it belongs to people who don't pay their bill in full every month.

Consumer housing and consumer loan debt has also increased rapidly in recent years.

In the 20 years to 2011, total housing and consumer loan debt increased around six-fold in dollar terms. As a ratio of household disposable income, the percentage at June 2011 of 147 per cent was about two and a half times that of 58 per cent at March 1991. The increase has been linked to the rapid increase in house prices.

Thankfully, the Reserve Bank moved to introduce curbs on high loan-to-value ratio home loans, which it says was providing further stimulus to house price appreciation.

It was a sensible move. Sometimes consumers need to be given a dose of reality for their own good.