Credit card debt slashed by $7.68 billion this year

We’ll be glad to see 2020 behind us, but at least more Australians are putting their credit card debt behind them at the same time. 

According to the latest credit and charge card data released by the Reserve Bank todayMultiple Credit Cards Australians have wiped a staggering $7.31 billion off personal credit card debt this year.

Over the same period, businesses have knocked $367.5 million off credit card debt accruing interest.

This brings the total reduction in credit card debt accruing interest for personal and business to $7.68 billion since January.

And at the same time Australians are drowning in cash, having stashed more of their cash in the banks.

Household deposits with financial institutions it up almost 12% over the year as Aussies have rapidly amassed close to $100billion in total savings as a buffer against the COVID-19 recession.

In September alone $16.5billion flowed into bank deposit accounts and since the pandemic household deposits are up a cumulative $99.5bn (or 10.1% on Feb 2020 levels ).

Putting both of these factors together is setting up many Australians for a better Christmas with less lingering debt.

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Summary of Reserve Bank Credit Card stats for September 2020:

  • Australians knocked a further $560 million off personal credit card debt incurring interest in September with the total now sitting at $20.08 billion, and for businesses the reduction in credit card debt over the same period has been $34 million with the total now $910  million
  • Since January, personal credit card debt accruing interest has come down by $7.31 billion while businesses have reduced credit card debt accruing interest by $367.5 million
  • The value of personal credit card cash advances has declined month on month, sitting at $393.6 million for personal credit cards in September.
    However, the number of cash advances increased 2.98% to 1.12 million.
  • The number of transactions on personal credit cards also fell in September from around 238.05 million in January to 227.45 million in September, and value of transactions fell from $22.74 billion in January down to $19.85 billion in September. Businesses saw the number of transactions fall by 5.61 million since January, at the same time the value of transactions decreased by $1.38 billion.
  • There were 70,333 fewer personal credit card accounts in September than the month prior and 791,127 less than in January 2020.
    For businesses, the number of credit card accounts dropped by 206 from the month prior and 48,405 since January 2020.

Expert’s Opinion

Canstar’s finance expert, Steve Mickenbecker says while most cardholders have been paying down credit card debt, there was still 1.12 million cash advances in September showing some are resorting to cash advances to get by.

With fewer spending opportunities, Australians are pulling the plastic out of pockets less frequently and paying off credit card debt. The pandemic has been a time for saving. credit card

Some of the debt reduction will have come from the COVID-19 superannuation release, a false economy in the long term if people allow themselves to fall back into credit card debt.

September’s RBA credit card data tells a tale of two cardholders.

One is paying off debt, cancelling cards and using fewer cash advances. The other is taking out cash advances – people who are still running up debt look to be doing it faster and to pay the bills.

Australians have made strong headway in 2020 when it comes to paying down debt and with tax cuts coming into play we could see debt fall even further and hopefully less people turning to cash advances as a last resort.

Credit Card Statistics – Personal Cards
Jan-2020 Aug-2020 Sep-2020 $ Difference % Change
MoM From Jan MoM From Jan
Number of Accounts* 13.78 million 13.06 million 12.99 million -70,333 -791,127 -0.54% -5.74%
Balances Accruing Interest* $27.39 billion $20.64 billion $20.08 billion -$0.56 billion -$7.31 billion -2.73% -26.70%
Average Balance Accruing Interest*^ $4,970 $3,952 $3,865 -$87 -$1,105 -2.21% -22.24%
Number of Transactions 238.05 million 226.58 million 227.45 million 0.87 million -10.60 million 0.38% -4.45%
Value of Transactions $22.74 billion $19.65 billion $19.85 billion $0.20 billion -$2.89 billion 1.04% -12.70%
Number of cash advances 1,381,567 1,084,609 1,116,975 32,365 -264,593 2.98% -19.15%
Value of cash advances $483.4 million $399.4 million $393.6 million -$5.9 million -$89.8 million -1.47% -18.58%
Prepared by www.canstar.com.au. Data source: RBA Credit and Charge Card Statistics, Sep-2020. *Number of credit card accounts and balances accruing interest based on original terms. Statements about trends should be made with caution. All other values are in seasonally adjusted terms. ^ Assumes 40% of personal credit card accounts are revolving a balance, and therefore accruing interest, based on the Canstar 2020 Customer Satisfaction Survey (n=5787).

 

Credit Card Statistics – Business Cards
Jan-2020 Aug-2020 Sep-2020 $ Difference % Change
MoM From Jan MoM From Jan
Number of Accounts* 860,918 812,719 812,513 -206 -48,405 -0.03% -5.62%
Balances Accruing Interest* $1.28 billion $0.94 billion $0.91 billion -$34.0 million -$367.5 million -3.61% -28.78%
Number of Transactions 17.04 million 11.19 million 11.43 million 0.24 million -5.61 million 2.19% -32.90%
Value of Transactions $6.09 billion $4.58 billion $4.70 billion $119.2 million -$1.38 billion 2.60% -22.73%
Number of cash advances 65,994 29,911 30,080 170 -35,913 0.57% -54.42%
Value of cash advances $54.3 million $34.4 million $33.8 million -$0.5 million -$20.4 million -1.59% -37.67%
Prepared by www.canstar.com.au. Data source: RBA Credit and Charge Card Statistics, Sep-2020. *Number of credit card accounts and balances accruing interest based on original terms. Statements about trends should be made with caution. All other values are in seasonally adjusted terms.

Sally Tindall, research director at RateCity.com.au, said it was good to see so many Australians paying down their debt during the pandemic.

“Australians have cleared $6.91 billion off their credit cards since COVID hit in March, saving some families hundreds of dollars a year in interest,” she said.

“While the pace at which we’re clearing our debt has started to slow, we expect the debt accruing interest to fall below $20 billion next month as tax cuts start to make their way through to people’s pay packets.

“Credit card spending rose in September as people were clearly out shopping more and putting more on their cards. The question is whether they are going to continue to be diligent in paying down their debts.

“With Christmas just over six weeks’ away, some people will be tempted to give their card a workout at the shops.

“If you’ve focussed all year on clearing your credit card debt, try and resist the temptation to blow the budget this Christmas. Otherwise you could find yourself back to square one in the New Year, struggling to pay down high-interest debt,” she said.

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Kate Forbes

About

Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).
Visit Metropole Melbourne


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