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Billions of dollars worth of credit card debt has been wiped away by everyday Australians who are turning their back on high interest-accruing lending products.
New figures from the Reserve Bank of Australia reveal the nation’s credit card bill in January dropped $7.38bn on the same month a year ago, with the majority of people choosing to pay via debit rather than credit.
On a monthly basis, Australians paid off $149m in personal credit card debt-accruing interest, with the total outstanding amount owed sitting at $20.01bn.
The number of credit card accounts in circulation has also declined by about a million compared with a year ago.
RateCity research director Sally Tindall said the drop was pleasing after credit card debt grew in the previous two months.
Credit card debt anecdotally rises in November and December due to the Christmas trading season, which is usually characterised by increases in spending and consumption levels.
“It’s positive to see many Australians starting the year clearing some of their Christmas debt, although with over $20bn still attracting interest, there’s a long way to go,” Ms Tindall 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.”
The value of debit card transactions also dropped after April, but in year-on-year terms the value of transactions rose $3.76bn.
Canstar financial services executive Steve Mickenbecker said the data still pointed to an increase in spending across the economy that would be welcomed by the central bank.
“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,” Mr Mickenbecker said.
“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.”
According to RateCity, the average interest rate on a credit card sits at 17.43 per cent.
“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,” Ms Tindall said.
She also said 15 providers, including two major banks, had credit card products with rates lower than 10 per cent.
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