Credit catastrophe: 1.8 million Aussies drowning in debt
Australians are struggling to pay their credit card bills as expenses soar, according to new research by Finder.
A Finder survey of 1,080 respondents – 603 of which have a credit card – revealed 1 in 6 (16%) Aussie card holders are over their credit card limit or unable to make repayments.
That's the equivalent of 1.8 million people who are struggling with credit card debt.
Australian credit card balances totalled $40.3 billion in May according to RBA data – and almost half (46%) of this is accruing interest.
Sarah Megginson, money expert at Finder, said Australians were becoming more dependent on credit cards during financially hard times.
"The cost of living crisis is tough for everyday Australians to manage, and economic conditions are hindering people's ability to pay their credit cards down."
Finder's research found 6% have gone over their limit – that's an estimated 681,627 card holders who have exceeded their borrowing capacity.
One in ten Aussie cardholders (10%) have missed one or more minimum repayment on their credit card debt, equivalent to 1 million card holders who can't pay back what they owe.
Megginson said going over your credit card limit can result in serious consequences.
"There are immediate impacts like fees and interest, which can add up to burden you with a lot of extra costs over time.
"Then there are longer term consequences, like a drop in your credit score.
"Going over your limit is a red flag for lenders that you may be a riskier borrower, which could affect your borrowing power when you want to take out a loan or apply for a mortgage."
Megginson said if your lender allows you to overdraw your account and exceed your credit limit, you're typically required to repay the overlimit amount immediately.
"Future transactions may be declined until you pay down some of the balance to get it below your limit again."
Megginson added that working to pay off your debt is a really smart way to go in the current economy, so you're not tempted to overspend and end up in financial trouble.
"Transferring your outstanding balance to a 0% interest balance transfer card can be a great debt reduction strategy, as long as you cancel your existing card once you've transferred the debt, and you don't spend on the new card.
"Keep in mind that if you keep spending on your old card or start making purchases with your 0% interest card, you'll cancel out the benefits of the interest-free periods and you could end up in a worse position, with two credit card debts and an even bigger mess to sort out."
|Are you struggling with your credit card debt?|
|Yes, I've missed more than one minimum repayment||3%|
|Yes, I've gone over my credit card limit||6%|
|Yes, I've missed one minimum repayment||7%|
|Source: Finder survey of 603 Australians who own a credit card, April 2023|
Here's 6 strategies to help you pay off credit card debt faster.