The festive season is a time of joy, celebration, and, unfortunately for many Australians, a time of financial overindulgence that can lead to a debt hangover come January. As the tinsel is packed away and the New Year’s resolutions begin to fade, the reality of post-Christmas debt looms large for a significant portion of the population, with experts sounding the alarm on what they describe as a potential ‘time bomb’ of financial stress.
The Australian Securities and Investments Commission (ASIC) has revealed that Australians estimated they would spend an average of $783 over the Christmas period, with a third of shoppers planning to splash out more than $1,000. This spending spree, often fueled by the desire to create the perfect holiday experience, sees many turning to credit cards and Buy Now, Pay Later (BNPL) services to foot the bill.
Andrew Grant, an associate professor of finance at the University of Sydney, points out that this pattern of festive overspending is not new. ‘People like to spend money to have a good Christmas with their family,’ he says. ‘So they’ll spend money on credit cards or other forms of short-term debt like revolving loans or BNPL that end up costing them money in the new year.’
The convenience of credit cards and BNPL services can be alluring, especially when faced with the pressure to buy gifts, festive food, and decorations. However, the consequences of not managing this debt effectively can be severe, including the potential to impact one’s ability to secure loans in the future.
ASIC’s research found that while 75% of Australians planned to use their savings to cover Christmas expenses, a significant 31% admitted they would rely on credit cards, and 16% would turn to BNPL services. The generational divide is also evident, with millennials and baby boomers more likely to dip into savings, while Gen Z and millennials are more inclined to charge their expenses to credit.
The research agency and financial comparison site Canstar has highlighted a worrying trend: credit card interest charges have consistently risen each January since 2015. With the cost-of-living crisis squeezing budgets even further, the post-Christmas debt issue is expected to intensify, with Australians projected to charge an estimated $86 billion to credit cards between November and January.
Shumi Akhtar, an associate professor at the University of Sydney Business School, warns that the combination of post-Christmas debts and existing financial pressures can create a ‘sort of a time bomb’ for those already struggling with the cost of living. ‘It will be a very tough situation for certain people, especially if they didn’t know what they were getting into,’ she cautions.
So, how can Australians avoid the debt trap? The Salvation Army’s recent research suggests that 17.4% of Australians will go into debt this festive period. However, Akhtar advises that it’s not too late to take control. ‘If they’re already struggling with paying the minimum payment on their credit card, they have to plan how they are going to pay it off because it’s going to climb out very fast,’ she recommends.
Have you ever faced the challenge of managing post-Christmas debt? What strategies have worked for you in staying on top of finances after the festive season? Share your experiences and tips in the comments below to help others who may be navigating this time.
Also read: Australians reveal their massive Christmas spending
