Australians wipe $4.2 billion off credit card debt since COVID

Australians have wiped a staggering $4.2 billion dollars off the national credit card debt accruing interest since the COVID pandemic hit.

Figures released by the RBA show that since March, credit card debt accruing interest has dropped by 16 per cent to $22.79 billion, the lowest total since October 2005.

This means Australians have knocked $1.6 billion off credit card debt accruing interest in June.

The data reveals there are 137,791 fewer credit card accounts than the month prior and 1.680,000 less than June 2019.

Experts opinions:

Canstar’s finance expert, Steve Mickenbecker says Australians have continued to knock debt off credit cards in June.

“Australians are raising the reduction of credit card debt to an artform. After a record $1.9 billion fall in May, Australians have followed up in June knocking a further $1.6 billion off their credit card debt incurring interest.”

“Debt on credit cards has been meandering down for years, but the acceleration over the past 12 months will have sent bankers into a spin, with the $7.7 billion knocked off cards reducing balances accruing interest to $23.2 billion.”

“The COVID shutdown will have contributed to the reduced debt, with the number of transactions on credit cards also falling from around 258 million in pre-COVID February to 236 million in June, and value of transactions from $28.6 billion to $24.3 billion. Debit card transactions have gone up over the same period.”

“Buy-now-pay-later programmes are displacing credit cards, in particular amongst millennials who are developing an aversion to credit card debt that could be spreading throughout the community.”

“The sudden lift in scale of the reduction over the past couple of months suggests that a lump of the $29.4 billion released from superannuation has found its way into credit cards, extinguishing stubborn debt.”

“It makes sense to park released super money in a credit card, clearing debt paying the average 16% interest rate, but we may yet see some of these debt balances return as the economic recovery becomes further protracted.”

“Hopefully the message is getting through that long term credit card debt is toxic to financial health. The numbers in coming months will tell us.”

Sally Tindall, research director at RateCity.com.au, said it’s positive to see so many Australians continuing to clear their debt during the pandemic.

“Since COVID hit in March, Australians wiped almost $4.2 billion off their credit cards – that’s a record-breaking effort that will save some families hundreds of dollars a year in interest,” she said.

“Credit card spending rose in June as people hit the shops after weeks in lockdown. Yet despite this, the total debt accruing interest continued to fall, as many families focused on getting back in the black where they could.

“The pandemic, as awful as it is, has forced thousands of households to revaluate their budgets and clear their debts.

“They’re doing it by any means possible, including using their super.

“If you’re someone who’s managed to clear your credit card debt during COVID, try to keep it that way. Paying down credit card debt is not a lesson anyone wants to learn twice,” she said.

Notes: excludes commercial cards, using original data from the RBA. Data released 7 August 2020. 

Credit card trends

Year-on-year, debt accruing interest has dropped by $6.5 billion, while the number of credit card accounts has fallen by 1.31 million.

However, month-on-month, Australians spent $3.46 billion more on their credit cards in June compared to May, the 20 per cent increase likely a result of lockdown being lifted across much of the country.

Notes: excludes commercial cards, using original data from the RBA. Data released 7 August 2020. 

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About Kate Forbes Kate Forbes is a National Director at Metropole assisting our high net worth clients safely grow, protect and pass on their wealth. She has 25 years of investment experience in financial markets on two continents, is qualified in multiple disciplines, and is also a Chartered Financial Analyst (CFA).