Credit card debt drops as Aussies start the year prudently

The Reserve Bank has today released its January 2021 credit and charge card data, revealing Australia’s spending habits have experienced a post-Christmas slump.

Many Australians put their wallets away in January after an expensive holiday season, with the value of credit card transactions down $5.32 million from December, a 22 per cent decrease in original terms.

The number of credit card accounts also declined, with more than one million closed year-on-year, hitting the lowest number since June 2007.

Despite the value of credit card purchases falling in January, following spending peaks November and December, the data shows that cardholders’ spending habits are nearing a return to pre-COVID-19 amounts.

 

Summary of Reserve Bank Credit Card stats for January 2021:

• Australians shaved $149 million off personal credit card debt incurring interest in January with the total balances accruing interest now sitting at $20.01 billion. At the same time businesses saw a $45.1 million decrease in credit card debt accruing interest with the total now $835.7 million.

• Personal credit card debt accruing interest has come down by $7.38 billion year on year, while businesses have reduced credit card debt accruing interest by $440.8 million.

• The number of purchases on personal credit cards increased by 4.5 million month on month, to 246.4 million in January. The value of purchases on personal credit cards decreased by $236.7 million from the month prior and $1.22 billion from the year prior to reach $21.15 billion in January.

• The value of personal credit card cash advances is down month on month by $7.6 million, sitting at $384.7 million for personal credit cards in January and the number of cash advances increased by 11,575 to 1.1 million.

• There were 74,952 fewer personal credit card accounts in January than the month prior and 1,030,492 less than in January 2020. For businesses, the number of credit card accounts dropped by 1,103 from the month prior and 54,683 since January 2020.

Experts’ comments:

Canstar’s Group Executive, Financial Services, Steve Mickenbecker says,

“Australians are making up for a year of subdued spending with the recovery in household expenditure seeing more than $20 billion dollars in credit card purchases during the first month of the year. This is only slightly behind the pace of spending in November and December.”

“Spending will be welcomed by the Reserve Bank as a necessary precursor to employment growth and inflation, but the other side to this coin is that when it is accompanied by higher stubborn debt it will add to future stress on household budgets.

“A portion of credit card spending is going on the tab, with debt accruing interest sitting at just over $20 billion. Cutting ties with credit card debt saw Australians pay off $7 billion in personal credit card debt accruing last year but this could be undone if the strain of new debt gets the better of people this year.

“Early release of superannuation ended in December, though some funds withdrawn from super may have still trickled into paying off credit card debts in January. The shoulder up from the early access to superannuation scheme is no longer available so it’s likely that cutting debt will be tougher in 2021.

“As much as spending is needed in the economy, Australians should continue to prioritise paying off credit card debts before April rolls around and we head into another spending frenzy around Easter and the school holidays.”

RateCity.com.au research director, Sally Tindall, said it was good to see Australians getting back on track after two consecutive rises in credit card debt.

“It’s positive to see many Australians starting the year clearing some of their Christmas debt, although with over $20 billion still attracting interest, there’s a long way to go,” she said.

“At the end of last year, the rate at which people were closing their credit card accounts looked like it was starting to plateau. However, in January there was another rise in the number people closing their accounts, reigniting the exodus away from credit cards.

“While Australians tightened their belts in January after the usual Christmas splurge, overall spending on debit cards in particular was significantly higher than this time last year, another sign the economy is back on track.

“If you’ve got credit card debt attracting a double-digit interest rate, consider switching to a cheaper card or transferring your debt to a low-rate personal loan.

“While the average credit card rate is 17.43 per cent, there are 15 credit cards with interest rates under 10 per cent, including two of the big four banks,” she said.

Credit Card Statistics – Personal Cards
	Jan-2020	Dec-2020	Jan-2021	$ Difference		% Change
				MoM	YoY	MoM	YoY
Number of Accounts*	13.8 million	12.8 million	12.7 million	-74,952	-1,030,492	-0.58%	-7.48%
Balances Accruing Interest*	$27.39 billion	$20.16 billion	$20.01 billion	-$149.0 million	-$7.38 billion	-0.74%	-26.94%
Average Balance Accruing Interest*^	$4,970	$3,931	$3,925	-$6	-$1,045	-0.16%	-21.03%
Number of Purchases	236.5 million	241.9 million	246.4 million	4.5 million	9.8 million	1.86%	4.15%
Value of Purchases	$22.37 billion	$21.38 billion	$21.15 billion	-$236.7 million	-$1.22 billion	-1.11%	-5.45%
Number of Cash Advances	1,378,394	1,105,757	1,117,332	11,575	-261,062	1.05%	-18.94%
Value of Cash Advances	$479.6 million	$392.3 million	$384.7 million	-$7.6 million	-$95.0 million	-1.94%	-19.80%
Prepared by www.canstar.com.au. Data source: RBA Credit and Charge Card Statistics, Jan-2021. *Number of credit card accounts and balances accruing interest based on original terms. Statements about trends should be made with caution. All other values are in seasonally adjusted terms. ^Assumes 40% of personal credit card accounts are revolving a balance, and therefore accruing interest, based on the Canstar 2020 Customer Satisfaction Survey (n=5787).

from Property UpdateProperty Update https://propertyupdate.com.au/credit-card-debt-drops-as-aussies-start-the-year-prudently/