The best ways for Aussies to pay off record credit card debt
Credit card spending has reached new heights according to payment statistics released by the Reserve Bank last week, with Australians putting a record $34.27 billion worth of purchases on their cards during the month of August.
The figure caps off a steady rise in credit card spending throughout the first eight months of the year, over which time Australians made just under $270 billion worth of purchases - $26 billion more than during the same period in 2022.
So what's been driving credit card spending higher? One cause could be related to the current cost of living crisis.
While some Australians have been able to cut back their spending as costs have risen, others have had to increase their reliance on credit, explains personal finance expert at comparison website Finder, Amy Bradney-George.
"The cost of living is definitely having an impact on people's household budgets. When essentials like fuel, groceries and energy bills keep going up, people have to find ways to get the money to pay for them on time and when they need them.
"So if you don't have the money on hand and you already have a credit card, there's an opportunity to use the card to cover those expenses. But obviously that can come at the cost of interest charges."
The uptick in credit use hasn't been confined to credit cards either. In a survey of more than 500 financial counsellors conducted by Financial Counselling Australia in May, 93% reported that more of their clients were turning to buy now pay later to cover essentials as living costs rose.
Credit card debt on the rise
As the total value of purchases has ticked up, so too has the amount of credit card debt which is attracting interest. In August, Australians had a combined interest-accruing balance of $18.49 billion on their cards - $158 million higher than in July.
While this might not be surprising, the recent cost-of-living crisis has actually marked a slight reversal in a long-term trend which has seen Australians steadily chip away at their interest-accruing debt.
After reaching a peak of $37 billion in October 2011, Australians had managed to slash their interest-accruing credit card balances by nearly $20 billion when the figure hit a 19-year low of $17.73 billion in May 2022. However, since then, the figure has edged higher.
Bradney-George says that the trend is worrying when many households are already coping with higher repayments on other debt.
"I think it's really concerning that balances accruing interest are going up because we already know that interest rates for other products have increased - particularly people with home loans.
"So if they're paying a higher interest rate on their home loan and they've also accrued a bigger balance on their credit card which they're paying interest on, then that's a real concern."
How to pay off credit card debt
Aside from fundamentals such as reducing credit card spending and calculating the quickest way to pay off the debt, Bradney-George says that Australians with a credit card balance which is accruing interest could benefit from a balance transfer.
"If there is a huge balance that's attracting interest, zero percent balance transfer credit card offers give you that time to transfer the balance and then pay it off with no interest during the introductory period."
Of course, a balance transfer may only prove worthwhile if that debt can be paid off in full during the zero-interest offer period.
For credit card holders who are really struggling with their repayments though, Bradney-George urges them to contact their bank or a financial counselling service.
"For people that are feeling stressed about their credit card debt - particularly if you're not sure about being able to make payments - it's really important to contact your bank as soon as possible to let them know so that they can discuss payment options with you.
"Another option is to call the National Debt Helpline on 1800 007 007 which offers free financial counseling."
For further information on the topic check out our article on creating a debt action plan to help ditch debt for good, or pick yourself up a copy of the November edition of Money (on sale November 2) to read about using a credit card for cash flow during the cost of living crisis.
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