Credit card crisis: Australia’s dependence on credit cards is growing
Credit card spending has reached record levels in Australia as disposable income dries up, according to new research by Finder.
Monthly purchases on credit cards reached a record high $33.5 billion in January, according to data by the Reserve Bank of Australia (RBA) – a whopping 17% increase over the year and an extra $4.9 billion put on plastic in 12 months.
Soaring cost of living pressures are a likely contributor, with 1 in 2 Aussies (52%) currently experiencing financial stress.
Finder's Cost of Living Report 2023 revealed 1 in 4 (27%) Australians say they can't manage their finances without a credit card.
This figure has been on the rise in the last 2 years. In May 2021, just 1 in 5 (18%) felt this way.
Amy Bradney-George, credit card expert at Finder, said a growing number of Aussies are using credit cards to buy things they couldn't pay for with cash.
"As prices continue to rise, consumers are depending on credit cards more – including to pay for essentials like food and utilities.
"With outstanding balances creeping up, households might quickly find themselves unable to pay back the debt they've accumulated.
"There is a very real risk that relying on a credit card, or any form of credit, to cover these costs will lead to interest charges and further debt."
Finder research of 1,310 workers in February and March 2023 found that 49% say they could only live off their savings for a month or less. Even more startling, 16% of workers say their savings would last less than a week.
Bradney-George said a worrying number of families are living pay to pay.
"The squeeze on finances is alarming for households across the country, especially those who have limited savings or other funds to draw on."
According to RBA data, the average balance on a credit card reached $3,056 in December 2022 as many Australians put holiday spending on plastic.
To help weather the storm, Finder is paying off one lucky Aussie's credit card balance up to this amount for taking a step in the right direction of their financial IQ.
Finder research in March found 79% of Australians are feeling some level of financial stress.
Bradney-George urged Aussies to pay off their credit cards in full every month.
"High interest rates can lead to a debt spiral. So even if it's not possible to pay off the whole balance, it may be worth shopping around for a card with a lower interest rate."
"The average credit card holder could save around $100 a year by switching to a low interest rate credit card for new purchases.
"If you're already carrying debt, you could save hundreds in interest charges by transferring the balance to a 0% credit card.
"Just remember that the new card is a helping hand out and not an invite to spend more."
Bradney-George said households should also look for other ways to lower expenses where possible.
"It can be easy to get overwhelmed when costs have risen across so many essentials, but there are still opportunities to save.
"For some people, it might be air-drying your washing or having a few more meat-free meals.
"For others it could be comparing goods and services to find a cheaper deal, or putting savings towards a credit card balance to help reduce interest charges and debt.
"Banks and service providers may also have hardship or support options available. If you or someone you know is in a hardship situation, you can call the National Debt Helpline on 1800 007 007 to get free financial counselling and support," Bradney-George said.
Enter Finder's Balance Busters and get your credit card balance paid off now.