The Experts

Biggest fall in credit card debt in 18 years


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Credit card debt slumps. The average credit card balance fell by $69 (2.0 per cent) to $3,299.10 in July. It was the biggest fall in credit card debt for a July month on record (18 years).

No growth in debt. The average credit card balance is up just 0.2 per cent on a year ago. In smoothed terms, (rolling 12-month average) the average credit card balance is up just 0.5 per cent on a year ago – the slowest growth in 32 months.

Credit & debit cards still actively used. In smoothed terms (12-month average) purchases made with credit cards were up 7.0 per cent on a year ago – the fastest rate in 6∏ years. Purchases made with credit cards were up by 15.5 per cent on a year ago.

ATMs shunned. The number of transactions at ATMs in July was down by 3.6 per cent on a year ago. But cash-out only debit card transactions at retailers were up a record 32.7 per cent on a year ago.

What does it all mean?

Aussie consumers pat yourselves on the back – you’ve mastered the plastic fantastic. People are using their credit and debit cards as much as they ever did, but smartly. Aussies are using their credit cards, but paying off the debt by the due date. And we are also smarter with our use of debit cards. Rather than getting cash out at the ATM, we are taking cash out when we go shopping for other things. Withdrawals at ATM are lower than a year ago while cash-out only debit card transactions are up almost 33 per cent on a year ago.

Certainly if we are applying for a new card, it is a debit card, not credit card. Credit card accounts are up around 1.0 per cent on a year ago while debit card accounts rose 2.0 per cent just in July. Debit card accounts are growing at a 6.0 per cent annual rate. There are now 35 million debit card accounts in Australia and 15 million credit card accounts.

Aussies are still using their cards. In fact purchases made with credit cards are growing at the fastest rate in 6∏ years. Still, debit card transactions are still growing at more than double this rate.

There is no sign of consumer conservatism coming to an end. And that is good news for consumers, retailers and the Reserve Bank. Living within your means is commonplace nowadays rather than the exception.

What do the figures show?

Figures released from the Reserve Bank show that the average credit card balance fell by $69.00 (2.0 per cent) to $3,299.10 in July. It was the biggest fall in credit card debt for a July month in 18 years of records. The average credit card balance is up just 0.2 per cent on a year earlier.

In smoothed terms (12-month average) the average credit card balance is up 0.5 per cent on a year ago – the slowest growth in 32 months and just above the slowest growth on record.

The number of credit card accounts rose by just 1.1 per cent over the year to July to 15.063 million. The number of debit cards rose 2.0 per cent in just July to 35.2 million and were up 6.1 per cent on a year ago.

Of credit cards attracting interest charges, the average outstanding balance rose by $6.30 to $2,441.30. The average balance accruing interest is up 1.0 per cent on a year ago.

In smoothed terms (12-month average) the average credit card balance accruing interest is up 0.5 per cent on a year ago – the slowest growth on record.

The average credit card limit fell by $4.10 to $9,180.60 in July. The average credit card limit rose by just 1.0 per cent in the year to July.

The growth rate in the number of credit card cash advances was up 7.7 per cent in July after being down 7.3 per cent in June (value, up 2.1 per cent after being down 3.6 per cent in July). In smoothed terms, credit card advances are down 5.1 per cent on a year ago and have consistently fallen in the past five years.

In smoothed terms, purchases made with credit cards were up 7.0 per cent on a year ago in July, the highest growth rate in 6∏ years. Purchases made with debit cards were up 16.6 per cent on a year ago (in smoothed terms up 16.5 per cent).

Cash-out only transactions with debit cards were up 32.7 per cent on a year earlier in July – the fastest rate on record.

What is the importance of the economic data?

The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

The Reserve Bank can become more confident about cutting rates in the knowledge it won’t lead to a spending boom. The attitude of Aussie consumers has changed. CommSec is still factoring in the possibility of a rate cut by end year.

Retailers need not fear the new Aussie consumer. Provided prices are competitive, goods are high quality and there is a range of payment options, consumers will spend locally rather than on-line. But consumers will shop around for the best deal.
 

Published: Friday, September 14, 2012

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