Credit card debt decline points to slow Xmas sales

Personal bankruptcies have fallen to their lowest level in five years as consumers cut down on their credit card use, but further bad news has been forecast for retailers in the lead-up to Christmas.

According to an annual report by the Inspector-General in Bankruptcy for 2010-11, there were 23,102 new bankruptcies in the year, down 16% from the previous year.

This is the lowest level recorded since 2005-06.

According to Inspector-General Veronique Ingram, there has been an easing in the number of people using “excessive credit card use” as a reason for personal insolvency, down from 23% to 21%.

The findings mirror the results of the latest Dun & Bradstreet Consumer Credit Expectations survey, which shows consumers are putting away their credit cards in the lead-up to Christmas.

According to the survey, nearly two thirds of consumers will use their own savings to pay for additional expenses in the December quarter.

Dun & Bradstreet chief executive Christine Christian says Australians appear to be turning away from the annual Christmas credit splurge, indicating retailers will continue to struggle.

“Ordinarily, we would expect borrowing to rise more dramatically around Christmas time, but these results would indicate otherwise,” Christian says.

The survey also found only 20% of consumers plan to apply for new credit, down from 33% in mid 2009. Meanwhile, the number of consumers applying for a credit limit increase has halved since the beginning of last year.

This correlates with findings that many consumers will avoid holiday spending altogether, with more than half saying they have no plans to make a major purchase over the next three months.

Of those planning a major purchase, 82% said they would use their savings. Significantly, the survey recorded a 25% fall in the proportion of consumers expecting to have extra money in the lead-up to Christmas.

These expectations are flowing through to consumer behaviour, with more than a quarter saying they will pay down debt or increase savings, while only 5% cent said they will spend or invest it.

“This does not bode well for key sectors like retail and tourism that are already experiencing an otherwise dismal year,” Christian says.

“At this stage, it is doubtful whether consumers will deliver as expected this Christmas.”

The survey reveals consumers in WA are the most likely to save any additional funds in the December quarter (22%), with Victorians the next best savers (18%).

However, 39% of WA consumers intend to make a major purchase in the lead-up to Christmas, followed by consumers in NSW (31%) and Victoria (30%).