Australians rely on plastic to get through to payday.
In fact, more than one in three credit card users are carrying around debt after they pay their bill each month, contributing to the estimated $3.15 billion lenders have collected in interest charges over the last year.
This according to a RateCity.com.au survey of over 1,500 credit card holders across the country highlights the harsh reality of the increased cost of living, as many Australians try to keep themselves afloat each month.
Further, the survey found:
- 41% of credit card users regularly have debt after they pay their bills each month. Of which:
- almost half (47%) have more than $2,000 in debt; which includes -
- more than a quarter (27%) have more than $5,000 owing on their card.
- Of those with credit card debt, 61% of respondents could not accurately recite the interest rate they were paying on this debt.
- Almost one in seven credit card users (13%) say they have a credit card to get them through to payday.
These survey results come on the back of data from the RBA, which shows, Australia’s total credit card bill from households has climbed for the third month in a row, clocking in at $17.61 billion at the end of February.
Analysis by RateCity.com.au shows Australian credit card holders have paid an estimated $3.15 billion in interest on this debt in the last 12 months (March 2023 to February 2024).
One in four has missed a minimum repayment
Even meeting the minimum repayment is a challenge for some credit card users.
The survey of 1,500 credit card users found that 20 per cent have missed at least one minimum repayment in the last 12 months, including 10 per cent who said they had missed more than one.
This is despite the fact the vast majority of cards have a minimum repayment of just 2 per cent of the balance owing.
On a $2,000 balance, this would equate to a minimum repayment of $40, yet the average late fee on the RateCity.com.au database is $21, while the highest is $45.
Concerningly, more than half of those who said they use their card to survive until their next payday had also missed at least one minimum repayment.
RateCity.com.au research director, Sally Tindall, said: “These survey results are cause for concern.”
“The fact that 20 per cent of credit card customers have missed at least one minimum repayment, which is typically just 2 per cent of the outstanding balance, means their credit card is getting the better of them,” she said.
“It’s alarming to think 41 per cent of those surveyed can’t clear their debt each month, and that the majority of these people don’t actually know what interest rate their lender is charging them.
“Credit card debt is corrosive, particularly for those having trouble balancing the monthly budget, because as soon as you get hit with interest charges it’s yet another cost to add to the pile.
“If your budget doesn’t look like it will make it through to the end of the month, put the credit card out of sight and consider your options.
“You may feel like your back is up against the wall, but talking through the problem with a family member, a friend, or even a financial counsellor, can help you see the wood for the trees.
“For many Australians stuck on a debt treadmill, sticking their head in the sand can feel like the easiest option, but the weight of that debt can have a lasting impact, not just on a person’s financial health, but also on their mental health.
“If you’re on the treadmill, it’s time to make a plan to get yourself off,” she said.
How can a credit card borrower get help
1. Cut the umbilical cord
The first step is to cut the umbilical cord and stop relying on your credit card to make the budget add up, even if that means cutting up the card and deleting it from your phone.
Think about transferring your regular payments over to a debit card, because the last thing you want with no interest-free days is to be putting new purchases on the card.
2. Call for help
The second step is to call your bank and ask them to lower your interest rate to something more manageable.
Before you call, check your bank’s lowest-rate card and other lenders’ low-rate cards so you know what’s possible.
While CBA, NAB and ANZ all charge 20.99 per cent on their rewards credit cards, with Westpac increasing its rate to 20.99 per cent on 20 June, the RateCity.com.au database shows there are 12 lenders offering at least one card under 10 per cent, including from big banks Westpac and Bendigo Bank.
On a revolving $5000 debt, switching from a rate of 20.99 per cent to 10 per cent could save someone over $500 in interest a year.
Interest charges on a $5K debt: big bank rewards card vs low rate card
| Rate | Interest paid - 12 months | |
| Big bank rewards card (CBA, NAB or ANZ) | 20.99% | $1,050 |
| Low-rate card | 10% | $500 |
| Difference | 10.99% | $549 |
Source: RateCity.com.au. Notes: based on an average daily debt once purchases and payments are made.
Another more definitive alternative is to switch the debt over to a personal loan and close down your credit card account entirely.
A personal loan forces you to pay off your debt in full within a set time frame, without the temptation to add to the debt, unlike a credit card.
3. Take a knife to your budget
As impossible as it might be, it’s time to make budget cuts – even if many of them are temporary.
Print out a list of your purchases across both your credit and debit cards and look at what you can cut, at least until you get back into the black.
You could also consider selling one or two big-ticket items you have at home to help clear the slate.
4. Future-proof your finances
Concerningly, RateCity.com.au found that 40 per cent of those surveyed have a credit card to help them pay for emergencies.
Instead of this, once you’re in the clear, consider keeping up the budget cuts until you’ve got a decent emergency fund saved up.
ASIC recommends three months’ worth of regular expenses so you don’t have to fall back into debt when the next big unexpected cost comes your way.
5. Walk away from the debt cycle for good
As tempting as it may be to play the credit card points and perks game, if you know you have trouble managing your debts, bench yourself.
