Australians’ Credit Card Usage Increasing Alongside Cost of Living Pressures

Visa and MasterCard credit card logos are seen in a store window in Washington, on March 30, 2012. Nicholas Kamm/AFP via Getty Images

Rising living cost pressures have forced many Australian households to dig deep into their credit cards in the past year, sparking concerns about defaults and other negative economic impacts.

According to recent data from the Reserve Bank of Australia (RBA), the total value of credit card transactions reached around $33.5 billion (US$22.38 billion) in January 2023, up 17 percent from a year earlier.

Compared to May 2022, when the RBA first raised the official cash rate, the total value of transactions had increased by 6.3 percent.

The number of credit card transactions also climbed by 11 percent between January 2022 and January 2023.

Data from the financial comparison website Finder showed that there were 13,247,246 credit cards in Australia as of January 2023.

The average balance per credit card was $2,935, down from $3,231 in March 2020, when the COVID-19 pandemic broke out.

In addition, the average interest cost accrued on each credit card was around $1,382.

Australians spent around $113 with their credit cards and made 22 purchases per month on average.

What Caused the Increase in Credit Spending

Associate Prof. Mark Humphery-Jenner from the University of New South Wales school of banking and finance said the surge in credit card spending could be the result of one of the following factors.

“Consumers might be confident about the economy and are willing to spend. Or, inflation might have forced them to spend more in nominal terms. Or, they are exhausting their savings and are relying more on credit card debt,” he told The Epoch Times.

Pointing to the significant drop in the household savings rate in the past year, especially in the last quarter of 2022 (from 7.1 percent to 4.5 percent), the associate professor said it was likely that many consumers were running down their savings and were relying increasingly on credit cards to pay for expenses.

A shopper holds money to make a purchase of fruit and vegetable produce at Paddy's Market in Sydney, Australia on Oct. 22, 2022. Lisa Maree Williams/Getty Images

Finder’s credit card expert Amy Bradney-George told The Epoch Times that her company’s research highlighted the pain points that many Australians were having with the increased cost of living.

“Whether it is affording housing, energy, petrol or groceries, Australians as a whole are being charged more for the goods and services they need, but have yet to see their wages increase at a relative level to offset these spikes,” she said.

“For some Australians, an increase in total credit card spending could simply be because the cost of so many goods and services has gone up. But for others, it could be a warning sign of financial stress and increased debt, which is very concerning.”

According to Finder’s latest costs of living report, groceries were the top household expense causing financial stress, with 38 percent of Australians citing the metric, followed by rent and mortgage at 37 percent, and petrol and energy at 26 percent.

In addition, over one in four Australians (27 percent) said they couldn’t manage their finances without a credit card, up from 18 percent in May 2021.

Potential Impacts on the Economy

While credit cards could temporarily help Australian households deal with their financial problems and increase consumption of goods and services, financial experts are concerned about the negative impacts of the rise in credit card usage.

People queue for ATM machines outside a branch of the Commonwealth Bank in Melbourne on August 8, 2018. - Australia's biggest bank, the Commonwealth, posted a slide in annual profits on August 8, capping a tumultuous year for a troubled lender which has been rocked by scandals and board upheaval. (Photo by William WEST / AFP) Photo by WILLIAM WEST/AFP via Getty Images

Mark said increased card use was generally bad for the economy, especially when wages were decreasing in real terms, inflation was high, and overall expenses were going up.

“Credit cards can only support expenditure for so long. High credit card interest rates will catch up with consumers, and this will ultimately reduce expenditure,” he said.

“Further, consumers can only obtain so much credit, limiting future spending increases.”

Meanwhile, Amy believed the phenomenon could have both positive and negative impacts on the Australian economy.

“It could lead to increased consumer spending, which in turn could stimulate economic growth. This can be good for local businesses, but consumer spending can be factored into further RBA decisions,” she said.

“If too many consumers become over-indebted and default, this would also have negative consequences for both consumers and lenders.”

As such, the credit card expert said consumer behaviour and the actions of lenders and policymakers would determine how credit card usage affected the economy.

Advice for Credit Card Users

Canstar’s financial services executive Steve Mickenbecker told The Epoch Times that credit cards were not designed to patch up households’ budgets for the long term.

“If the credit card is being used to prop up the household budget month after month with no end in sight, it isn’t solving a problem but creating a worse one,” he said.

As such, Steve advised Australian consumers to examine their spending.

“At all times, the best advice is to only spend on cards what you can afford. When there is household stress, reaching for the card can look like a way out, but with high credit card interest rates, it can quickly become a debt trap,” he said.

“It’s time to examine the spending and the earning side of the family budget to look for ways to close the gap.”

Shoppers are seen in the Pitt Street Mall in Sydney, Australia, on Dec. 26, 2022. Roni Bintang/Getty Images

Amy from Finder suggested credit card users shop around for a card with a lower interest rate.

“The average credit card holder could save around $100 a year by switching to a low-interest rate credit card for new purchases,” she said.

“If you’re already carrying debt, you could save hundreds in interest charges by transferring the balance to a zero percent credit card.”

Meanwhile, RateCity’s research director Sally Tindall said that there were some options that consumers could consider other than reaching for credit cards.

“Switching to cheaper brands at the supermarket, renegotiating your regular bills, selling things you don’t need around the house. These all may seem trivial, but together, the savings can really add up,” she said.

Tindall also noted that some organisations, such as Good Shepherd, could provide no-interest loans to a certain group of people in case of emergencies.

Furthermore, the National Debt Helpline could provide free financial services to help people devise a plan to deal with the cost of living crisis.