Australians wipe $4.2 billion off credit card debt since COVID

Australians wipe $4.2 billion off credit card debt since COVID

Australians have wiped a staggering $4.2 billion dollars off the national credit card debt accruing interest since the COVID pandemic hit.

New figures released today from the RBA show that since March, credit card debt accruing interest has dropped by 16 per cent to $22.79 billion, the lowest total since October 2005.

During this time almost 400,000 credit card accounts have been closed.

  Pre COVID (March) 20 June 2020 Change since COVID-19
Number of accounts

13,641,553

13,268,098

-373,455

-3 %

Total balances accruing interest

$26.98 billion

$22.79 billion

- $4.2 billion

-16 %

Notes: excludes commercial cards, using original data from the RBA. Data released 7 August 2020.

Credit card trends

Year-on-year, debt accruing interest has dropped by $6.5 billion, while the number of credit card accounts has fallen by 1.31 million.

However, month-on-month, Australians spent $3.46 billion more on their credit cards in June compared to May, the 20 per cent increase likely a result of lockdown being lifted across much of the country.

  May 2020 vs June 2020 June 2019 vs June 2020
Number of accounts

- 133, 738

-1%

-1.31 million

-9%

Total balances accruing interest

- $995 million

-4%

- $6.5 billion

-22%

Total value of transactions

+ $3.46 billion

+20%

- $783 million

-4%

Notes: excludes commercial cards, using original data from the RBA. Data released 7 August 2020.

Sally Tindall, research director at RateCity, said it’s positive to see so many Australians continuing to clear their debt during the pandemic.

“Since COVID hit in March, Australians wiped almost $4.2 billion off their credit cards – that’s a record-breaking effort that will save some families hundreds of dollars a year in interest,” she said.

“Credit card spending rose in June as people hit the shops after weeks in lockdown. Yet despite this, the total debt accruing interest continued to fall, as many families focused on getting back in the black where they could.

“The pandemic, as awful as it is, has forced thousands of households to reevaluate their budgets and clear their debts.

“They’re doing it by any means possible, including using their super

“If you’re someone who’s managed to clear your credit card debt during COVID, try to keep it that way. Paying down credit card debt is not a lesson anyone wants to learn twice,” she said.

Paying down your credit card debt

Looking to pay down your credit card debt during COVID-19? It may be worth considering switching to a balance transfer card. This allows you to move your existing debt on to a new card charging zero per cent interest for a set period of time. For cardholders struggling with debt, this may offer some much needed breathing room.

Keep in mind that any new payments you make on your balance transfer credit card will immediately begin accruing interest. It’s recommended that you put your balance transfer card in the freezer whilst you chip away at your debt so you’re not tempted to add to it.

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Learn more about credit cards

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

Current Interest Rate

This is the current interest rate on your existing credit card.

How do I apply for a credit card online?

Monthly repayment

This is how much you can afford to pay on a monthly basis off your credit card. You can enter any amount you wish; but to make the balance transfer worthwhile the default is $200.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How to get rid of credit card debt

  1. Calculate your debt. Credit card calculators make it easy to determine the repayments required to chip away at your debt in the shortest timeframe possible for your budget.
  2. Repayment plans. Take some time to formulate a credit repayment plan. Consider increasing your income, scaling back your lifestyle or refinancing.
  3. Talk to your credit provider. If you’re still struggling with your debt, give your credit provider a call. You may be able to come to a new arrangement.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

Current Annual Fees

These are the current annual fees on your existing credit card.