Sunday, January 24, 2021

Credit card debt falls to 10-year low in the pandemic’s wake

Credit card debt falls to 10-year low in the pandemic's wake

“The Christmas spike in credit card spending is now a thing of the past,” he said.

“People have been spending less on their credit cards but, even more critically, they’ve been accelerating the rate at which they have been repaying the money they owe on their credit cards.”

The number of credit cards on issue has also plummeted. In mid-2017 there were 15.4 million personal credit card accounts in Australia but that fell to 12.9 million in October, the lowest since mid-2008. Between January and October last year about 88,000 personal credit cards left the market every month, on average.

The reduction in credit card borrowing reflects a marked shift in consumer behaviour during the coronavirus pandemic. Households have responded to the health and economic crisis by increasing savings and taking a more cautious approach to their finances, including paying down card debt.

But the move away from credit cards also reflects longer-term changes in the way payments are made, especially a growing preference to use debit cards.

Credit card spending is at a 10-year low due to the pandemic. Credit:

Mr Ebstein estimated debit accounted for 47 per cent of all card purchases in the year to October, up from 25 per cent a decade ago.

“The pandemic has accelerated trends already apparent,” he said.

CommSec chief economist Craig James said younger consumers favoured making purchases with debit cards rather than credit cards and many have shifted to “buy now, pay later” schemes.

“It’s a generational thing, Gen-Y and Gen-Z are much less inclined to get a credit card and more inclined to use services like ZipPay and Afterpay,” he said.


Last year, one in five people used a “buy now pay later” service, although Reserve Bank governor Philip Lowe said last month this option still accounts for a “small proportion” of total consumer payments.

Mr James said it was likely some of the government’s pandemic-related income support, including JobKeeper, the JobSeeker supplement and one-off payments to welfare recipients, had also been used to repay credit card debt.

“In times of uncertainty people want to keep their financial affairs in order,” he said.

Credit card use in Australia surged in the late 1990s and early 2000s but Mr Ebstein said the momentum slowed following the economic shock of the 2008 Global Financial Crisis.

“There has been softness in credit card spending for the last ten years,” he said. “And what we’ve seen this year is contraction largely due to poor consumer sentiment.”

The Household, Income and Labour Dynamics in Australia Survey (HILDA), which has tracked the financial behaviour of 9500 households since 2001, underscored the trend for consumers to reduce credit card debt. The latest report, released in November, showed the average credit card debt amongst the households surveyed fell by more than a third between 2010 and 2018 from $2358 to $1500.

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