Credit card debt slashed by $8 billion this year

The Reserve Bank has just released its latest credit and charge card data, revealing Australians have knocked $7.68 billion off personal credit card debt accruing interest this year.

Over the same period, businesses have cut $401.7 million from credit card debt accruing interest.

This brings the total reduction in credit card debt accruing interest for personal and business to $8.08 billion since January.

The latest data shows personal credit card debt accruing interest has been declining for 9 consecutive months, while business credit card debt accruing interest has been falling for 8 consecutive months.

But money management is important at this time of year

The headway made to pay down credit card debt could be undone if card holders reach for the credit card this Christmas, said Canstar’s finance expert, Steve Mickenbecker.

“As tempting as it might be to splash out to make Christmas feel extra special this year, don’t come unstuck before the years' end by stacking on credit card debt,”

“This year has been a breakthrough for many credit card holders with credit card debt declining rapidly. A new frugality has taken hold and if carried into the new year, we could see a sustained decline in credit card debt.

“The pandemic has taught us a lot about our attitudes and values, and one of the learnings has been that the sustainability of our lifestyle matters more than the number of things money can buy. Hopefully this financial habit will endure well beyond COVID-19.

“While further cuts to credit card debt look promising, it will be important to ensure credit card debt isn’t transferred to other forms of debt such as buy now, pay later services.
The latest Canstar Consumer Pulse Report found the number of people with debt in a buy now, pay later service has increased to 18% this year, up from 10% in 2019.

“October’s credit card debt accruing interest is down month on month but at a slower rate, which shouldn’t be a surprise given the tailing off of early release of superannuation.”

It's good to see debt accruing interest dropping

RateCity.com.au research director, Sally Tindall, said it was great to see the total debt accruing interest drop below $20 billion.

“It’s taken us 16 years to get here, and let’s hope we can keep the debt accruing interest under $20 billion on the other side of Christmas,” she said.

“While Australians are still chipping away at their outstanding credit card debt, the rate at which we’re knocking it off has slowed.

“Next month the number of transactions is likely to spike as a result of pre-Christmas sales, such as Click Frenzy and Black Friday.

“The real test will be whether the debt accruing interest spikes too or whether Australians have learnt their lesson about the perils of racking up high interest credit card debt.

“If you’ve given your credit card a workout in the lead up to Christmas, try and work out a plan to pay your debt off before your interest free days expire.

“The last thing you want is to start 2021 with a mountain of debt at rates as high as 24.99 per cent,” she said.

Tips for using your credit card this Christmas 

1. Set a budget: Make a list and don’t overspend.
2. Take away the temptation: Put your credit into the freezer once you’ve reached your budget limit.
3. Make a plan to pay it back: Before you spend, make sure you have enough money to pay it back in January, so you’re not lumped with interest charges.

Credit card statistics: change since COVID

Source: RBA, released 7 December 2020, original data, excludes commercial cards.