Credit card applications are down – but what about debt?

Rising credit card spending and current debt levels mean you could be missing out on interest savings.

Data from Equifax shows that new enquiries for credit cards have been dropping since mid-2018, following a peak in March of that year. But overall spending has increased on credit cards each year, Finder analysis of RBA data shows.

In the 2019 calendar year, Australians made $333.72 billion worth of credit card purchases – an increase of 2.17% compared to the 2018 calendar year. The number of purchases made in the first 3 months of 2020 has also increased, year-on-year.

Table: Analysis of Reserve Bank of Australia (RBA) credit card statistics

With the total number of cards declining, this means people with credit cards are spending as much (or more) than before.

The amount of debt cardholders carry has also stayed at a similar level to previous years. Currently, the average credit card balance accruing interest is $1,951.

If you had this balance on a credit card with an interest rate of 19.99% p.a. and only made minimum repayments of 3% each month, it would take you almost 11 years to pay off the balance and cost around $1,918 in interest. Even if you paid $100 off your balance each month, you'd still spend 2 years paying the card off and be charged $428 in interest.

In comparison, if you applied for a new credit card that offered 0% p.a. on balance transfers for 24 months and paid $100 off your debt each month, you would clear it in 20 months without paying any interest at all.

This scenario is an example of when applying for a new credit card could offer you more value than sticking with an existing one – particularly if you are currently looking for ways to keep costs down.

Doubling up on fees

As well as debt from purchases, many credit cards charge annual fees that add to the overall account costs. Data from Finder's consumer sentiment tracker – a live and nationally representative survey – shows that while most people (43%) have 1 credit card, 26% of people have between 2 and 4 cards.

Even if they were all low-fee accounts, that could cost hundreds of dollars each year.

There are two easy ways to cuts down on these fees:

1. Cancel any cards you don't use or need. Ask yourself which card (or cards) you use the most, which you like as an option and which ones may be costing you more than they are worth.
2. Consolidate all your existing accounts onto a new card. If you have balances on some of the accounts, you could request a balance transfer to consolidate them and then close the old credit cards.

With either option, comparing your existing accounts with other options can help you get a sense of how much value you're getting from your cards – and how much you could potentially save by making a change.

Other ways to get more value from a credit card

As well as looking at balance transfer offers to help you pay down debt, some of the useful perks you could get on a new or current credit card include:

• Set up an instalment plan: If you want to pay off a purchase or debt in fixed instalments, you could be able to set up a plan and get a promotional interest rate for your repayments. Credit card providers including Bankwest, Citi, CommBank and Westpac offer instalment plan options, which could help you break down new purchases or a current balance into bite-size instalments.
• Consider a low rate card for purchases: When you think you'll be using your credit card more often than usual (or if you already are), a lower interest rate on purchases will help keep the overall costs down. Check your current rate and compare it to low rate options to see if there's another card that could help you save money on future credit card spending.
• Search shopping offers: A little known money hack is that most credit cards give you access to seasonal shopping offers. For example, with a Visa credit card, you could get a $5 McDonald's voucher through Visa Offers + Perks and with a CommBank card you could access cashback offers through CommBank Rewards (via the app). Mastercard credit cards, Amex cards and others also have their own network of offers – even if you don't have a rewards card.
• Boost your rewards: If you are actively seeking more value from your credit card spending, it is worth looking at cards that offer thousands of introductory bonus points and ongoing rewards you could use for future flights, gift cards, cashback or even a coffee machine if that's on your wish list. These cards offer a lot of potential value, but keep an eye on annual fees and other costs to avoid spending more than you want.

People may be wary of getting a new credit card right now (as the statistics suggest), but if you're already using one then it is a good time to check if it offers you good value. If it doesn't, switching to a different card now could help you save money and reach your goals faster.

Picture: Getty