Jack Han reports on the growing competition between credit card providers after record debts.
February 22, 2010
Credit card users have broken an all-time record in the Christmas season, dismissing predictions that Australians would be spending conservatively in the wake of the financial crisis. With this level of confident spending, it looks like the threat of interest rate increases is far from consumers’ minds.
Credit card spending in December 2009 peaked at $22.02 billion, which was a jump of $2 billion from November. Being the largest monthly credit card spend by Australians in history, the splurge has increased the average credit card balance to $3,250.
These statistics suggest that Australians are recovering swiftly from the financial crisis, and that the stimulated spending will likely spill over into the rest of the year.
After the Reserve Bank meeting earlier this month, credit card users were relieved by the announcement that the cash rate has been put on hold. This has put the banks in an uncomfortable position, as they must decide whether they can afford the backlash from increasing credit card interest rates against RBA policy.
It’s uncertain whether interest rate hikes will curb credit card use dramatically, but any rate rises this soon after the record breaking spending will no doubt affect the way borrowers make repayments.
In December, while spending increased by $2 billion, repayments also increased by the same amount, meaning that Australians are well aware of the risks involved in leaving credit debt unpaid.
On the average debt of $3,250, credit card spenders making minimum repayments of $100 will take years to repay their balance. However, Australians can save themselves on interest repayments by comparing rates to get the best deal. For example, a card user with a rate of 13 percent will repay their debt in three years and five months, while other Australians on the lowest rate of 8.75 percent will take only three years and two months.
Lenders are well aware that this is the time for Australians to compare credit cards, which is why we are seeing competitive deals, such as low rate credit cards below 10 percent, and many balance transfer offers that provide spenders with 0 percent introductory rates for up to 6 months.
If you are one of the Australians whose spending reached new heights in Christmas, knock down your repayments by comparing credit cards for cheaper deals. Thousands of spenders helped Australian credit card debt plateau, but you don’t have to be trapped at the peak of debt along with everyone else.