Ratio of credit card debt to discretionary income in New Zealand - Data and Analysis (2002-2033)

IBISWorld forecasts the ratio of credit card debt to discretionary income to decrease by 0.30 percentage points in 2025-26, to 6.8%. This trend is set to be driven by the first significant expansion in real household discretionary income since 2020-21. Discretionary income growth is expected to be bolstered by declines in the cash rate. The RBNZ has already reduced the cash rate from 3.75% at the start of the year to 3.25% through two 25 basis point cuts in April and May 2025, with the possibility of more rate cuts throughout the rest of 2025-26. These cuts will push up discretionary income through reduced interest payments on household debt, like mortgages. Heightened discretionary incomes will also allow consumers to pay off any existing credit card debt with greater ease, further putting downwards pressure on credit card debt to discretionary income. However, total credit card debt will face some upwards pressure, as monetary policy aims to stimulate spending in the economy. This increased spending will limit declines in New Zealand's total credit card debt in 2025-26.The ratio of credit card debt to discretionary income fell significantly in 2020-21 as discretionary income increased over the year. The New Zealand Government implemented several measures in 2020-21 in an attempt to minimise the economic impact of the pandemic. The cash rate sat at 0.25% during the entirety of 2020-21, which kept interest costs on household debt to a minimum. Wage stimulus packages also helped push up discretionary income, as well as a fall in discretionary spending due to reduced economic activity. All these factors contributed to a reduction in aggregate credit card debt balances across the New Zealand economy. The decline in the ratio of credit card debt to discretionary income witnessed in 2020-21 was the continuation of a long-term downward trend that has been ongoing since the mid-2000s. Consumer attitudes towards debt has been cautious since the global financial crisis, when the ratio of credit card debt to discretionary income dipped significantly. Consumers have become increasingly wary of taking on credit card debt, as highlighted by the weaker growth in credit card balances ever since.Changes in the ratio of credit card debt to discretionary income have been far less volatile since 2021-22. Real balances of credit card debt have continued to decline throughout this period, the largest of which occurred in 2021-22 and 2022-23. However, the 9.5% decline in real credit card debt balances in 2021-22 were offset by an 8.5% decline in real household discretionary income, which resulted in the ratio of credit card debt to discretionary income decreasing by less than 2%.2023-24 marked the first increase in the ratio since 2014-15. Credit card debt balances declined throughout the year but at the slowest rate since before the pandemic, as high inflation and a growing cost-of-living placed significant upwards pressure on credit card balances, limiting the annual decline. A 4.2% contraction in real household discretionary income, driven by a cash rate that sat at 5.5% for the majority of 2023-24, offset the modest decline in credit card debt, pushing up the ratio of credit card debt to discretionary income. In 2024-25, the RBNZ started to decrease the cash rate, dropping by 1.75 percentage points over 4 cuts throughout the year. While real household discretionary income declined, placing upwards pressure on the ratio, the annual decrease in credit card debt offset this decline, causing the ratio of credit card debt to discretionary household income to fall by 1.4%.Despite rising household consumption expenditure over the past five years, declines in credit card debt balances have been driven by the large number of personal debt alternatives providing strong competition to credit cards for New Zealanders. Buy now, pay later services like Afterpay, have provided consumers with an alternative to credit cards, contributing to the decline in the ratio of credit card debt to discretionary income. Other payment providers, like PayPal, have also remained competitive against credit cards by providing consumers with various payment options, which have been well adopted during the online shopping boom. Overall, IBISWorld forecasts the ratio of credit card debt to discretionary income to decline at an average annual rate of 0.18 percentage points over the five years through 2025-26.