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Australians have racked up more than $200m in personal debt over the Christmas period, bucking the trend in recent months of a declining use of credit cards within the country’s payment system.
Latest payment data from the Reserve Bank of Australia shows $205m of new debt was added to credit card balances over December, a 1 per cent increase on the previous month.
According to the RBA data, balances accruing interest at the end of the month hit $20.16bn.
It also recorded an 8 per cent, or $1.8bn, hike in the value of credit card transactions made in the month, bringing the total number of payments to $24.6bn
RateCity research director Sally Tindall said debt accruing interest had increased for the second month in a row, with the estimated interest bill for December sitting at close to $290m.
“While households tend to spend more over the holidays, what’s worrying is for two months in a row, debt accruing interest has increased,” she said.
“With sky high interest rates that climb up to 24.99 per cent, credit card debt can be crippling.”
Despite the monthly rise, the total value of credit debt is trending down with card holders at the end of December wiping away close to $7bn in personal loans compared with a year ago.
Credit products in circulation are also tracking down an annual fall of 9.1 per cent in the number of cards on issue.
Canstar executive Steve Mickenbecker said the end of the early release of superannuation scheme and recovered spending patterns from the pandemic could prompt further rise in interest accruing debt in months to come.
“With the early withdrawal of superannuation now at an end, it’s likely that future falls in debt will be more muted than we saw in 2020,” he said.
“Credit card debt may rise further, given retail spending has recovered quickly, and it is likely that some of this will find its way into increasing credit card debt during 2021.”
In a House economics hearing last Friday, RBA governor Philip Lowe urged Australians to shop around for a better credit card and said they should not willingly accept high interest rates set by providers and banks.
“I have frustration that there are still credit cards in the Australian marketplace with interest rates around 20 per cent,” Dr Lowe said.
“If you‘ve got a credit card with a high interest rate and you don’t like it, go and find another one because there are ones out there, and if, collectively, we, as Australians, do move to the better products, the banks will have to withdraw the bad ones – the bad, high-interest-rate ones.”
According to RateCity, 15 credit cards are being offered at rates of less than 10 per cent.
Debit card use during December jumped to its highest level on record, rising 11 per cent compared with the prior month to $40.86bn worth of payments made.
The use of debit and other payment alternatives such as buy now, pay later are spurring on the trend of lower credit use, as a waft of consumers have started flocking to spending mechanisms that don’t incur interest.
Ms Tindall said many Australians would still have outstanding debts from the Christmas period to pay on platforms such as Afterpay, which are usually linked to debit cards.
“Right now, many buy now, pay later customers will still be dealing with debt they racked up over the holidays,” she said.
“If you have credit card or buy now, pay later debt, make a plan to pay it off as quickly as you can.”
The RBA also recorded a significant drop in the number of ATM withdrawals, which fell 21.2 per cent compared with December 2019.
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