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Australia’s credit card debt continues to spiral -  finder

The 2012 credit reform has had little impact on slowing down credit limit growth. Research released by finder.com.au and the Reserve Bank of Australia (RBA) in August 2015 shows that credit card balances and credit card limits reached an all-time high in June 2015. Then, in September 2015, finder.com.au discovered that almost two million Australians are facing debt for life. Here we unpack these findings to analyse Australia's credit card habits and discuss how Aussies can dig themselves out of debt.

The findings

  • Increased credit limits

Research released by finder.com.au and the RBA in August 2015 has proven that the 2012 credit reform hasn’t reduced overall credit limit growth as anticipated.

The 2012 Senate inquiry credit card reforms required banks to:

  • provide cardholders with standardised credit card key fact sheets and greater control over the credit limits you receive.

  • desist from offering automatic offers to increase credit limits unless customers requested one. Issuers were also obliged to direct repayments to the most expensive part of the credit debt first and clearly demonstrate how interest-free periods work, making it easier for you to reduce your debt faster.

These reforms were implemented from 1 July 2012. While total credit limits dropped by $4.6 billion between September 2012 and October 2012, they have been rising ever since.

Australia's total credit limit has now reached a record high of almost $145.55 billion as of June 2015. This averages to a credit limit of $9,048 for each of the 16.09 million credit cards currently in circulation.

Despite this dramatic credit limit increase, Aussie cardholders haven’t necessarily been taking advantage of them. Rather than using the total credit limit, credit cardholders at large have only been using their card as they need it. The proportion of credit limits used in total is down from 37.36% in December 2012 to 35.36% in June 2015. This means that while credit limits have increased, cardholders have kept their balances at the same level since the credit card reforms.

  • Increased credit card debt

While credit card debt hasn’t increased at the same rate at as the rising credit limit, credit card balances are still at an all-time high. In June 2015, credit card balances reached a record level of $51.47 billion, an increase of $195.5 million since May 2015 and up $1.3 billion since June 2014. Many Australians are struggling to repay their balances and are shouldering a massive amount of debt as a result.

In late August 2015, a Senate inquiry was held to investigate the role of the banks in facilitating these debt levels. The inquiry revealed that Australians are taking decades to repay their credit card debts. RBA assistant governor for the financial system Malcolm Edey told the inquiry that a stronger risk assessment may need to be introduced as a requirement for credit-card lending. While the attendees pointed out the need for greater transparency from the banks, there are some ways that cardholders can empower themselves and protect their finances against credit card debt.

  • Overall lifelong debt

In September 2015, a finder.com.au survey showed that 53% of Australian adults (an estimated 9 million) are currently in debt, with 10% (1.7 million) expecting to live with these debts for the rest of their lives. The results revealed that Australians are too complacent about debt, especially at a time when debt levels have never been higher. According to the study, Australians have a combined credit card and personal loan debt of over $109 billion, a number that has increased by about $2 billion over the past year.

The study also revealed that Aussies are beginning to accumulate debt at a younger age as well, with the average age of debt accumulation sitting at 27. Out of these numbers, only 19% of Australians (3.2 million) see themselves conquering their debt within the next five years. Predictably, adults with children were more likely to have accumulated debt, with only 44% of parents considering themselves debt-free. On the other hand, 55% of adults without children live without debt. While debt levels are continuing to rise, there are ways for Aussies to relieve themselves of their financial burdens.

14-041MR Smart people not so smart with their money - ASIC  - 12 March 2014 notes:

  • Over half a million Australians carry more than $5,000 in credit card debt [1]. It may come as a surprise to know that it is often middle income earners, managers and degree qualified people who are most likely to carry $5,000 or more compared to the general population.

  • Research by Roy Morgan shows 22% of Australians over the age of 18 earn more than $70,000 per year, and these people make up 42% of those who carry credit card debt over $5,000.

  • 12% of the population are managers and managers make up 26% of those with debt above $5,000.

  • 42% of Australians have a degree or diploma they represent 49% of those carrying $5,000 or more in credit card debt.

  • Around 2 million Australians do not pay off their personal credit card debt in full each month, rising from 24% of personal credit card holders in 2009 to 27% of personal credit card holders in 2013 [3]. Australians have over $34 billion owing on credit cards where interest is being charged and pay $6.2 billion a year in interest [4].