Aussies more efficient with credit cards, causing debt to drop

A new analysis of Reserve Bank of Australia data undertaken by the Australian Bankers’ Association (ABA) has revealed that Australian credit card users have reduced their overall outstanding balance by $260 million to $52.2 billion.

The ABA noted that Australian credit card spending totalled almost $325 billion in 2017, with consumers repaying $341 billion, $16 billion more than the total of their spending.

ABA chief economist Tony Pearson believes that the new figures indicate that Australians are becoming “financially savvier”.

“Overall credit card holders are becoming more financially savvy, taking care to repay debt and keep their interest costs low,” Mr Pearson said.

“For only the third time ever, Australia has reduced its overall amount outstanding on cards — this time by $260 million.”

Further, according to the ABA’s analysis, total interest accruing on credit cards has fallen “well below” the peak in 2012, with the proportion of interest paid on the overall balance falling to 61 per cent — close to a record low.

“This means people are now paying interest on a smaller portion of their balance, which helps to keep credit card costs manageable,” Mr Pearson added.

The ABA also cited data from the RBA, which revealed that Australian credit card holders are using only 34 per cent of their available credit card limit — the lowest proportion for 15 years.

The ABA suggested that Australians are therefore becoming more conservative in racking up debt, only using their credit cards when needed.

The chief economist also advised Australians to “shop around” for credit card options that are appropriate for them, and he encouraged consumers to track their spending to ensure they don’t “fall behind” in their repayments.

Scrutiny of household spending and debt figures have ramped up in recent months, with household debt levels currently at an all-time high of 200 per cent of disposable income and 123 per cent of GDP, making Australia the most debt-laden industrialised nation on a per capita basis.

To address the medium-term risks associated with high and rising household indebtedness, the Australian Prudential Regulation Authority introduced a number of supervisory measures last year and credit standards had been tightened to lower the risk profile of borrowers.

Growth in household credit had slowed somewhat, but members agreed that household balance sheets still warranted careful monitoring.

[Related: RBA reveals cash rate decision]