Credit card customers have wiped billions of dollars off their debts
Australians have rushed to pay off their credit cards and now have the lowest level of plastic debt owing since 2006. This is how they are doing it.
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Borrowers have wiped billions of dollars off their credit cards and now have the lowest level of plastic debt owing since 2006.
Latest Reserve Bank of Australia data released on Monday showed in July customers smashed $1.9 billion off their balances, bringing their total debt owing down to $34.4 billion.
And for balances accruing interest this fell by $1.3 billion down to $21.4 billion.
The number of credit card accounts has also fallen by about 500,000 since March.
The bosses of the two of the nation’s big four banks – ANZ’s Shayne Elliott and the Commonwealth Bank’s Matt Comyn – recently said they had seen customers at their respective banks wipe a collective $4 billion ($2 billion per bank) from their card balances during the pandemic.
Financial comparison website RateCity’s spokeswoman Sally Tindall said there were two key reasons Australians were paying down card balances, by either using their tax returns or money withdrawn under the early access to super scheme.
“Using lump sum payouts like tax returns to pay off a credit card that’s accruing interest every month may help families stay afloat in the long term,” she said.
“With JobKeeper and JobSeeker getting scaled back the budgets of many households are about to get a lot tighter.”
And despite the RBA keeping the cash rate at a record low of 0.25 per cent this month, credit card rates remain stubbornly high.
Many interest rates are still above 20 per cent.
During the pandemic National Australia Bank reduced minimum repayments for card customers struggling to pay their debt off, dropping it from 2 per cent down to 0.5 per cent.
This support measure is ending on September 25.
While rival bank Westpac has offered card customers a three-month deferral period which means they do not have to make any repayments and are not charged interest during this time.
At a parliamentary committee hearing into how the banks had responded during the pandemic CBA’s Mr Comyn said many customers were on cards that attracted lower rates – their lowest rate card charges an interest rate of 9.9 per cent.
“A vast majority of customers who have outstanding balances would be on the lower rate cards as opposed to the reward or premium cards,” he said.
He said in the June quarter they saw a 20 per cent reduction in the bank’s card balances – or the equivalent to $2 billion.
“It’s quite a substantial reduction, certainly more substantial than we’ve seen previously,” Mr Comyn said.
More than 2.8 million people have also dipped into their retirement savings prematurely under the Federal Government’s early access to super scheme, that allows them to withdraw up to $20,000 tax-free this year.
Latest figures show $34.5 billion has been withdrawn.
Originally published as Credit card customers have wiped billions of dollars off their debts