The average person can spend up to $8500 on their credit card and owes just over $2000.
That's according to current Westpac data on credit card limits and average monthly balance.
Speaking to The AM Show on Monday, Westpac general manager customer outcomes Leanne Lazarus, said as credit cards are easy-to-use, they're a convenient way to pay for purchases.
But as swiping a card requires less thought than handing over cash, people can be tempted to overspend. To avoid this, they should set a "sensible limit" - something the bank said many of its customers had already done.
"I was really surprised the average limit was only $8,500 - an average balance every month would be just over $2,000". I thought it would've been much higher," Lazarus said.
Around 60 percent of the bank's customers pay off their balance in full each month.
The remaining 40 percent who didn't pay it off incurred interest on their outstanding balance. Interest rates range from 13.45 percent for a 'no-frills' low-rate Mastercard, to 20.95 percent for a Platinum card, with extras such as airpoints or hotpoints.
"Most of [the higher cost] is to pay for that interest-free period, it could be the rewards, and it's fraud prevention," Lazarus said.
"The interest rate is much higher than other types of borrowing, therefore paying off the balance in that interest-free period is really important," she added.
Borrowers could use bank tools to remind them when their credit card bill is due - and pay it before interest is charged on the outstanding balance.
"Download your bank's app [and] set up text alerts when you're getting close to limit," Lazarus suggested.
Reserve Bank of New Zealand data released on August 21, 2020 shows that at July 31, $6.23 billion was owed on personal and business credit cards. Of this, around 60 percent was incurring interest.
To help less disciplined credit card users avoid getting in over their head, Chris Walsh from Moneyhub shares the following three tips:
- Look for a card that suits your needs. For those who are unlikely to repay the full balance each month, low-interest credit cards of around 9.95 percent are better. Some banks also offer zero interest on balance transfers for up to six months - a good incentive to repay debt. Those who always pay on time could look for generous rewards and flight benefits.
- Audit your statement every month. Look at what you can avoid spending next month and charges you don't need, e.g. automatic renewals and memberships. "You can only keep your spending under control by going line by line through your bill and learning from what you spend," Walsh said.
- If you don’t have self-control, stick with cash. "Buying stuff may seem like a good idea, but debt can spiral and cause misery. Be smart and be safe."