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Credit card debt hits lowest level since 2004

Credit card debt hits lowest level since 2004

Australians have wiped a total of $6.3 billion of debt accruing interest from their credit cards since COVID, according to new RBA figures released today.

This is the lowest level of credit card debt accruing interest since December 2004.

Australians have also been cutting up their cards in droves. The number of credit card accounts has dropped by over half a million since the end of March, and 1.4 million year-on-year, hitting the lowest level since April 2008.

Credit card statistics: change since COVID

March

(pre COVID)

August 2020Change since COVID-19
Number of accounts

13,641,553

13,057,684

Lowest since April 2008

-583,869

-4.3%

Balances accruing interest

$27.0 billion

$20.6 billion

Lowest since Dec 2004

- $6.3 billion

-23.5%

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

Credit card statistics: monthly and year-on-year changes

Monthly change

(July vs August 2020)

Year-on-year change

(Aug 2019 vs Aug 2020)

Number of credit card accounts

-84,801

-0.6%

-1.4 million

-10%

Total balances accruing interest

-$831 million

-3.9%

- $7.5 billion

-26.7%

Total number of transactions

-10.7 million

-4.7%

-9.5 million

-4.2%

Total value of transactions

- $817 million

-4.1%

- $3.2 billion

-14.3%

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

Sally Tindall, research director at RateCity, said Australians were continuing to chip away at credit card balances in August with a $831 million drop in debt accruing interest from the previous month.

“While Australians have made yet another dent in credit card balances accruing interest, the rate at which we’re paying off this debt has started to slow from the peak in May, when a record 1.6 billion was wiped in just one month,” she said.

“The number of credit card accounts is also plummeting as many people turn their backs on credit cards for good.

“Providers know the glory days are over for credit cards. They’re frantically trying to create new options to challenge the buy now, pay later industry, but it could be too little too late.

“While we’re unlikely to see credit cards disappear altogether, they’re no longer the kingpin of credit.

“Debt accruing interest is likely to keep on falling in coming months as some families are likely to use the upcoming tax cuts to get themselves off a debt treadmill they’ve been stuck on for years.

“Using tax cuts to clear credit card debt might not be what the Treasurer had in mind, but for some families, the freedom that comes with being debt free will be worth it,” she said.

Working off your balance

If you're keen to cut up your credit card for good but your outstanding balance is getting in your way, consider if a balance transfer card may suit your financial needs.

Balance transfer credit cards may offer some much needed breathing room for those looking to pay down their debt. They typically come with zero per cent interest rate offers for a set period of time, such as 6 months to 24 months. In this time, through careful budgeting, you may be able to chip away at your debt once and for all. 

Just note that any new purchases made will immediately begin to accrue interest, so you may want to lock your new card up somewhere so you won't be tempted to use it. Further, if you're unable to pay your balance in full by the end of your zero interest period, you'll begin to accrue interest on your oustanding balance again. Ensure your budget is able to manage a full balance repayment in your balance transfer period. 

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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