Hey big spender: Sky’s the limit for Australian credit card holders

Australian households have access to almost $150 billion in credit card debt.42420219_l

This is the highest on record, according to a new analysis of Reserve Bank of Australia figures by creditcardfinder.com.au, Australia’s biggest credit card comparison website.

Credit limits rose to $149.16 billion in April 2016 – up $4.6 billion in just 12 months.

The average credit card limit is now $9,069.

Considering the average credit card holder has 2.19 cards2, that’s equivalent to a whopping $19,861 credit limit per person.

The credit limit is outstripping the number of new accounts according to the creditcardfinder.com.au analysis.

While the collective credit limit rose 3.2% in 12 months, the number of accounts rose 2.8%.

When taking a longer term view, credit limits rose by almost $10 billion in two years or 7.11%

Bessie Hassan, Money Expert at creditcardfinder.com.au, questioned whether laws banning banks from enticing customers to up their credit limits, introduced four years ago, had gone far enough.

“Under the Federal Government changes which came into effect in mid 2012, banks are banned from sending offers to cardholders to increase their credit limits unless customers provide consent, yet competing banks are not prevented from offering new cards to the same customers.” she said.

Shortly after the laws were introduced Australian credit limits dropped by about 3.5% – only staying below $9,000 until April 2014.  

“We’re seeing increasing numbers of Australians with more than one card. There are nearly half a million more cards in circulation than a year ago3 (+448,120). They face the risk of taking out credit they cannot afford.

“It’s a worrying trend and puts households at risk if their spending gets out of control,” she said.

“A spiralling credit limit can substantially reduce the amount of money customers can borrow on things like mortgages and car loans.”

A $3000 credit debt will cost $1,718 in interest over five years, based on a 19.49 per cent interest rate. A $5,000 debt will attract $2,863 in interest.

Ms Hassan urged borrowers to stay on top of their credit card debt.

“As you pay off your card, get the lender to reduce your credit limit to reduce temptation,” she said.

Take control of your credit card debt

  • 0% balance transfer: If you have credit card debt across multiple accounts you can consolidate it into a single card with a balance transfer. You will pay 0% interest for a specific period of time, with some card providers offering up to 24 months. Read the fine print as these rates are often introductory so you should work hard to repay the debt before it reverts back to the normal rate. credit card
  • Go above and beyond: Don’t just make the minimum payment each month. Get into a routine of making extra payments so you can stay on top of your credit card debt. Also check to see how often your interest is calculated because if it is calculated daily, you should make repayments as often as possible to minimise your debt position.
  • Assess your need for plastic: Reduce your credit card debt by not adding to it. Review your spending habits and consider whether or not you need to be pulling out the plastic. If you’re struggling to meet your credit repayments, you may want to opt for a debit card or a personal loan.
  • Give high-interest cards priority: If you’re unable to consolidate your credit card debt, then focus on paying off high-interest cards first. Pay the minimum payment on each card and then put any extra cash towards paying off the card with the highest interest rate.
  • Limit yourself: Keep in mind that every time you apply for a credit limit increase, it is listed on your credit file. To resist the temptation of overspending on your credit card, lower your credit card limit as you pay off your debt.

Also published on Medium.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

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