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Aussies are becoming ‘smarter’ at cutting credit card debt: research

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AUSTRALIANS are getting better at avoiding crippling interest charges on their credit card debt.

New data from the Reserve Bank shows local cardholders have cut the amount of interest they are paying on their plastic, even though credit card interest rates have not moved in recent years, stuck near 20 per cent.

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The nation’s overall credit card debt that attracts interest charges has dropped 11 per cent in the past four years — saving consumers more than $700 million — but still sits at $33 billion, while our overall credit card debt has reached a record high of $52.2 billion.

Consumer finance specialist Lisa Montgomery said Australians were getting smarter about managing their credit card debt, and many were making the most of balance transfer cards offering zero per cent interest, typically for 12 months.

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“There’s a propensity for a lot of people to move from one balance transfer card to the next, to the next. For some it’s a bit of a game and a hobby,” she said.
“We have become a lot more savvy about what we use and how much it’s costing us.”
A Finder.com.au analysis of the new data found that consumers paid off almost $10 billion more than they spent on credit cards over the past 12 months.
Finder spokeswoman Bessie Hassan said she believed the trend would continue. “I think Aussies are waking up to the fact that they are spending too much on credit card interest,” she said.
Standard credit cards charge interest rates near 20 per cent per annum. Personal loans charge around 10 per cent and mortgages 5 per cent, so the cost of $10,000 owing on a credit card can be $2000 a year — four times as much as if it was owed on a home loan.

Ms Hassan said falling mortgage interest rates gave households extra cash to pay more off their credit card debt. “The best way to beat credit card interest is to repay the debt every month, within the interest-free period, and limit your spending behaviour if necessary,” she said.
Finder also found that the average card balance attracting interest had dropped 19 per cent in the past four years, from $2471 to $1992. However, the number of credit card accounts has jumped 15 per cent in the same period to 16.5 million as consumers spread their debt across more cards.
Ms Montgomery said the high interest rates charged by many credit cards were “a big payday for the banks” and dangerous for consumers because using a card was not as emotional as paying with cash.
“It’s simply plastic being handed over,” she said. “People often treat them as a necessity to supplement their income. Without their card they can’t live the lifestyle they have got.”

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The Indian Telegraph Sydney Australia

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