Media Statements - Avoid the New Year financial hangover

23/12/07

Western Australians could find themselves paying off their credit card for years if they overindulge on spending during the festive season.

Consumer Protection Minister Sheila McHale said consumers needed to be aware of the dangers of resorting to easy credit and over-spending at Christmas and the January sales.

“At this time of the year, it is easy to be seduced by offers of easy credit, interest-free deals and ‘percentage-off’ sales,” Ms McHale said.

“But any savings you make at the pre and post-Christmas sales can be wiped out if you cannot afford to make the repayments.

“If you can only make the minimum monthly repayments on a $1,000 credit card bill attracting interest at 18.25 per cent, you could end up paying $155 in interest and still owe $880 after 12 months.”

The Minister said it could take 13 years to repay this debt with interest costing over $1,100 - more than the total cost of the items.

“Consumers should also avoid resorting to cash advances on credit cards, with lenders charging up to 19.99 per cent interest with no interest-free period,” she said.

“Interest-free deals can also be a trap for the unwary with many containing special conditions, meaning consumers can end up paying interest rates of up to 28 per cent if they don’t pay off the item in the required time.”

Ms McHale said consumer debt had spiralled with Australians owing $41.1billion on their credit cards in September 2007, compared with $37.2billion the previous year.

There was also growing evidence low income earners were hurting financially with data from the Insolvency and Trustee Service Australia showing personal insolvency agreements for people with an after tax income of less than $57,765 increased 28 per cent in the 12 months to June 2007.

Ms McHale said that each year the Consumer Protection and the Financial Counsellors Association of WA received an increase in calls during January from consumers experiencing financial hardship and credit relief advice.

“This is when the credit crunch begins to bite as the credit card and utility bills start coming in just as parents are facing extra costs to send their children back to school,” she said.

“Nobody wants to be a scrooge at Christmas, but the alternative can be far worse.”

The Minister provided these tips to observe while Christmas shopping:

prepare a budget and stick to it in order to avoid impulse buys;
keep track of your spending and try to minimise credit card use;
if you do choose to use interest free offers, read all terms and conditions;
plan to pay off the balance as quickly as possible to avoid interest;
when buying presents, check out the refund policies of stores; and
remember you do have a right to a refund, repair or replacement if the item is faulty, not the same as described by the sales staff or in advertising, or is not suitable for its intended purpose as advised by the salesperson or packaging.

“Consumer Protection officers check stores to ensure retailers are not displaying illegal ‘No Refund’ signs,” Ms McHale said.

“These signs are misleading because consumers do have a legal right to a remedy in certain circumstances.

“However, this does not extend to unwanted presents or impulse buys so chose purchases carefully.

“Many people will also choose to buy gift vouchers this Christmas but rules for gift vouchers vary from store to store so check the terms and conditions, including the expiry date.”

Minister's office - 9213 6900