Debt from cards is at decade lows, but new threats are emerging to clients’ borrowing ability
Debt from cards is at decade lows, but new threats are emerging to clients’ borrowing ability
Credit card debt is loosening its grip on borrowers, with 2017 seeing the first ever fall in the number of credit cards, according to the RBA.
The average balance stood at $3,127.70 in November which, despite the Christmas shopping rush, represented a decline of 0.7% in smoothed terms. Overall, credit card debt is at a decade low.
ABA chief economist Tony Pearson said the fall in debt reflected increasingly savvy customers. “Overall credit card holders are becoming more financially savvy, taking care to repay debt and keep their interest costs low,” Mr Pearson said.
“Last year Australians spent nearly $325 billion on credit cards, but repaid $341 billion, $16 billion more than they spent. For only the third time ever Australia has reduced its overall amount outstanding on cards – this time by $260 million,” he said.
Changing attitudes to debt
Credit cards have long been a problem for borrowers, given many lenders’ insistence on looking at cards’ credit limits rather than actual balance.
However, CommSec has warned that “Generation Y is driving a change in card preferences with debit cards preferred over credit cards due to continued wariness of debt and reluctance to carry cash.”
Furthermore, CommSec notes that recent cap by the RBA on interchange fees has reduced the generosity of credit card loyalty schemes. According to Mozo, customers need to spend on average $20,000 to earn a $100 gift voucher.
The rise of Afterpay
Generation Y, otherwise known as millennials, are far from free of personal debt, however.
Afterpay is a lender which allows borrowers to pay for online purchases in fortnightly instalments. Assuming the borrower keeps up with instalments, there are no interest repayments or up-front fees for up to 56 days.
The company now has more than 1.1 million customers and 8,600 participating merchants, with its ASX shares rocketing in January and a plan expansion to the USA.
However, RateCity money editor Sally Tindall said has warned shoppers to be cautious “For a lot of shoppers, Afterpay takes their bank-balance out of the decision-making process, which is what retailers want.”
Tindall notes that Afterpay’s late payment fees can rapidly rack up, especially if the borrower is paying for Afterpay with a credit card.
Credit card debt is loosening its grip on borrowers, with 2017 seeing the first ever fall in the number of credit cards, according to the RBA.
The average balance stood at $3,127.70 in November which, despite the Christmas shopping rush, represented a decline of 0.7% in smoothed terms. Overall, credit card debt is at a decade low.
ABA chief economist Tony Pearson said the fall in debt reflected increasingly savvy customers. “Overall credit card holders are becoming more financially savvy, taking care to repay debt and keep their interest costs low,” Mr Pearson said.
“Last year Australians spent nearly $325 billion on credit cards, but repaid $341 billion, $16 billion more than they spent. For only the third time ever Australia has reduced its overall amount outstanding on cards – this time by $260 million,” he said.
Changing attitudes to debt
Credit cards have long been a problem for borrowers, given many lenders’ insistence on looking at cards’ credit limits rather than actual balance.
However, CommSec has warned that “Generation Y is driving a change in card preferences with debit cards preferred over credit cards due to continued wariness of debt and reluctance to carry cash.”
Furthermore, CommSec notes that recent cap by the RBA on interchange fees has reduced the generosity of credit card loyalty schemes. According to Mozo, customers need to spend on average $20,000 to earn a $100 gift voucher.
The rise of Afterpay
Generation Y, otherwise known as millennials, are far from free of personal debt, however.
Afterpay is a lender which allows borrowers to pay for online purchases in fortnightly instalments. Assuming the borrower keeps up with instalments, there are no interest repayments or up-front fees for up to 56 days.
The company now has more than 1.1 million customers and 8,600 participating merchants, with its ASX shares rocketing in January and a plan expansion to the USA.
However, RateCity money editor Sally Tindall said has warned shoppers to be cautious “For a lot of shoppers, Afterpay takes their bank-balance out of the decision-making process, which is what retailers want.”
Tindall notes that Afterpay’s late payment fees can rapidly rack up, especially if the borrower is paying for Afterpay with a credit card.
