The danger of consumer credit

More and more people are getting into debt for necessities

Households with a tight budget are particularly financially challenged at Christmas.(Bild: Vitalii - stock.adobe.com)

The financial situation of many Austrians remains tense. More and more people are even having to take on debt in order to cope with the expenses of their daily lives. The situation is exacerbated in December during the Christmas shopping season.

Christmas is just around the corner and, in view of the persistent slump in consumer spending to date, Austrian retailers are enjoying very pleasing sales. On average, Austrians want to spend 386 euros on presents, which is 26 euros more than last year.

For many people, however, the Christmas period is an extreme financial challenge. For private households, especially those with low to very low incomes, the rise in prices in recent years has pretty much "eaten up" their already low savings. Nevertheless, people still want to hide presents under the Christmas tree.

This is why people increasingly resort to consumer credit and make purchases "on credit" at this time of year. "There is traditionally a significant increase in the electronics sector before Christmas," says Martin Spona, head of the online comparison portal Durchblicker. In addition, due to high inflation, more and more people are having to finance their daily lives with consumer credit, i.e. on credit.

Four out of ten Austrians already have to finance unplanned expenses externally.

Martin Spona, Geschäftsführer von Durchblicker

According to a Durchblicker analysis, the number of applications rose by an impressive 9.3 percent in the first half of this year, despite interest rates remaining high. "From our consultations, we know that consumer loans are increasingly needed to bridge the gap because households no longer have sufficient financial reserves. As a result, four out of ten Austrians have to borrow to finance unplanned expenses," explains Spona.

(Bild: Krone KREATIV/Stock Adobe)

This is less and less about "luxury expenses" such as a new car, but increasingly about necessary purchases such as a new fridge. This is followed in second place by the financing of debt restructuring, followed by the purchase of a used car (see chart on the right).

Overdrafts are the most expensive form of financing
However, anyone who needs "money on credit" should be careful, as interest rates can be very high. Clearly the most expensive way to borrow money is in the form of an overdraft. Banks currently charge up to 13.75 percent for this. "An installment loan offers the advantage of a fixed repayment plan with monthly installments," emphasizes the expert. However, a comparison of conditions can also significantly reduce the cost burden here, as the examples show (see chart): For example, just under 120 euros can be saved in interest over the term of a 3000 euro loan, and over 600 euros for a 15,000 euro loan.