Australians winning the war on interest-accruing debt
- Australians made $319 billion in credit card repayments in past financial year
- During the 12 months to June 2016, cardholders repaid $17,585 per Australian adult
- How to reduce credit card debt
16 August, 2016, Sydney, Australia – Australians are making the biggest headway on interest-accruing credit card debt since records began, a new analysis of Reserve Bank of Australia figures by finder.com.au, Australia’s biggest credit card comparison website reveals.
Australian credit card holders made $319 billion in repayments in the 12 months to June 30 2016, which represents 103% of the $309.5 billion spent on purchases and cash advances during the same period in 2015. This figure is up from the $303 billion repaid on the previous financial year ending June 30 2015.
Total balances accruing interest have been falling since they reached a peak of $37.1 billion, or $2,471 per card in April 2012. This balance now stands at $32.95 billion, or $1,992 per card.
This represents a 19.4% improvement per card in just four years.
The RBA began recording the value of balances accruing interest in 2002.
Bessie Hassan, Money Expert at finder.com.au, says the data shows Australians are getting better at credit card management.
“Australian households repaid a phenomenal amount off their credit cards in the past 12 months, which is equivalent to $17,585 for every Australian adult,” she says.
“Credit card holders need to keep improving on this position by focusing on repaying their plastic debt, and dodging unnecessary interest charges where possible.”
Ms Hassan says consumers are becoming more savvy when it comes to repaying credit card debt as a priority.
“It’s clear that Australians are prioritising high-interest debt which is a smart way to minimise your interest repayments and improve your financial well-being. The average credit card purchase rate stands at 17.23% which is more than threefold the average variable mortgage rate of 4.93%. It makes financial sense to repay high-interest debt ahead of other financial commitments,” she says.
“In addition, the average credit card balance accruing interest is now $1,992, which is down from $2,471 four years ago. A lower credit card balance means credit card holders can potentially minimise interest charges by repaying their debt more quickly.”
Ms Hassan believes dropping mortgage repayments thanks to record low interest rates has enabled Australians to afford to pay down more off their credit card.
“The best way to beat credit card interest is to repay the debt every month, within the interest-free period, and to limit your spending behaviour if necessary.”
Australian’s owed $52.22 billion on their credit cards in June 2016, of which $32.95 billion was accruing interest.
finder.com.au’s top ways to pay down debt faster:
- Don’t miss your payments: Missing your payment deadline generally incurs a late payment fee which generally ranges from $0 - $40. It may seem small, but missing your repayment or not paying it off in full may cancel the interest-free period on your card, which can result in a hefty fee on your balance or interest being charged immediately on all new purchases
- Do a balance transfer: With over 100 cards offering no interest for 12 months or more, a balance transfer can be a useful way to transfer your existing credit card debt to a new credit card and benefit from the interest-free period. For example, if you’re currently getting charged 20% on a $5,000 balance, transferring this debt over to a card with a 0% for 12 months balance transfer will save you around $1,000. Try to pay down your debt during the interest-free period and resist from topping up your balance as this will make it difficult to reduce your debt.
- Don’t stick to minimum repayments: Don’t fall into the habit of just making the minimum monthly payments on your credit card. When you only make the minimum payment, the bulk of your payment will go towards interest and you’ll find that it takes a long way to repay the debt in full. Instead, use any surplus cash to put towards making extra repayments as this will free you from debt sooner.
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The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.
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