Banking News

Credit card debt hits pre-GFC low

Credit card debt hits pre-GFC low

(15 January 2020 - Australia) Credit cards continue to fall out of favour with Australian consumers, in stark contrast to their American counterparts.

According to the latest Reserve Bank of Australia statistics (RBA), there is A$27.2 billion in debt accruing interest in Australia, the lowest level since December 2006 and pre-dating the outset of the Global Finance Crisis. Consumers paid down A$2.45 billion from their credit card balance in the year to November 2019.

The average credit card balance currently stands at A$3,357.82 while the average limit has declined to A$9,833.34. East & Partners Merchant Payments program also confirms debt card usage is expanding, credit card usage is falling, cheque usage is dwindling, buy-now-pay-later (BNPL) services are growing in popularity and cash withdrawals at ATMs are falling.

The monthly RBA releases credit and debit card transaction data confirms a major shift towards paying down debt, clearing more than three times the $675 million of debt paid off in the previous year to November 2018. 

Credit and debit card purchase volumes increased by less than one percent to total 6.7 percent on the year, in line with a sharp lift in retail transactions. There are currently 14.7 million active credit card accounts, marking a nine-year low.

Conversely America’s credit card debt is on the rise. In Q4 2018, US households added US$26 billion to their credit card debt. At the end of 2018, the Federal Reserve Bank of New York found that US household debt is greater than the peaks seen before the 2008 financial crisis.

“Personal debt, which includes personal loans, credit card debt and other revolving credit such as margin loans, accounts for a small and declining share of household credit. More recently, the increased use of buy-now-pay-later services may be contributing to a decline in credit card balances accruing interest. Buy-now-pay-later products are attractive to consumers because they offer the ability to smooth consumption at limited or no cost: these obligations do not incur interest, although late fees are charged if payments are missed and some providers charge regular account keeping or payment processing fees.”

“While these products are not subject to responsible lending laws, the providers do employ some varying methods of managing risk, for example, by setting low purchase limits for new customers or requiring full repayments of previous purchases before funding new purchases” the RBA wrote in its October 2019 Financial Stability Review.

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