Credit card interest bills drop as borrowers are behaving better

Credit card interest costs have dropped as Australians wisened up about wasting money, but a new danger has emerged.

Consumers have slashed their interest costs on credit card debt. Picure: iStock

Consumers have chopped in half their levels of dangerous, expensive credit card debt over the past 10 years, but some of the pain has been transferred to buy now, pay later products.

A new analysis of a decade of credit card rates, fees and Reserve Bank figures has found that between 2014 and 2024, credit card balances accruing interest have fallen from $31.8bn to $17.5bn, a 45 per cent drop, while the average size of purchases also has fallen.

The reduction in these balances has saved cardholders billions of dollars in unnecessary interest payments, with interest rates today topping 25 per cent a year on some cards.

The analysis, by comparison website Mozo.com.au, found that the maximum number of interest-free days on a credit card had almost doubled to 110, giving people more flexibility in managing repayments.

It also found:

• Average annual fees have climbed 25 per cent to nearly $135.

• The highest annual fee nearly doubled, from $700 to $1200.

• There has been a 600 per cent surge in low-rate credit cards offering a 1-10 per cent interest rate.

• The average value of each credit card transaction fell 23 per cent to $90, partially driven by the tap-and-go shift towards a cashless society.

“Overall, I would say that Australians’ change in credit card use over the past decade has been positive,” Mozo finance specialist Rachel Wastell said.

She said the smaller purchases and lower balances suggested a shift towards more cautious and responsible spending amid cost-of-living pressures.

“However, this could be in part driven by a new-found reliance on BNPL services,” she said.

Separate Mozo research found that more than half of Australia’s credit card holders also had at least one buy now, pay later account.

Sort My Money founder David Rankin said the move away from high-interest credit card debts was “a generational shift and a behavioural shift”.

“People have woken up to the danger of having long-term credit card balances,” he said.

Mr Rankin said BNPL was “still not a great way of managing your finances, but it is better than forever credit card debt”.

“At least buy now, pay later is finite,” he said.

However, people juggling multiple buy now, pay later schemes could be in trouble.

“I have seen people with massive numbers of transactions on buy now, pay later, and it’s a sign that someone has really fallen behind,” Mr Rankin said.

Using short-term credit facilities to cover day-to-day living expenses was never a good idea, he said.

Mozo spokeswoman Rachel Wastell. Picture: Supplied

Sort My Money founder David Rankin. Picture: Supplied

“Food on the table does not belong on a credit facility, it’s a sign of financial stress, and it’s happening more and more now with the cost-of-living crisis,” he said.

Mozo’s Ms Wastell said new regulations had been introduced to protect BNPL users, but there was no regulatory authority tracking and publishing data on how much BNPL debt Australians accumulated.

“This is concerning … as the cost of living continues to rise, BNPL services are growing in popularity,” she said.

Ms Wastell said credit cards with interest rates in the 20-25 per cent range had grown by 24 per cent. “While 10 years ago there were no cards on the Mozo database with rates over 25 per cent, there are now four cards in this range with rates as high as 27.49 per cent,” she said.

Originally published as Credit card interest bills drop as borrowers are behaving better