Australia is a debt ticking time bomb with two million people exceeding their credit card limit since the start of the COVID-19 pandemic.
Reduced working hours from the coronavirus recession mean even more Australians are relying on plastic debt to pay their bills and buy essentials.
While Reserve Bank of Australia interest rates are at a record-low of 0.25 per cent, the big banks are still charging double-digit rates on credit cards.
Financial comparison website Finder calculated that 15 per cent of Australia’s 14million credit card users had exceeded their credit card limit during the coronavirus pandemic.
Younger people even more likely to have overdrawn on their credit card, with 26 per cent of millennials aged between 18 and 38 exceeding their limit.
Tips for dealing with credit card debt
Have a hard limit imposed that stops you from exceeding the limit
Make more regular repayments
Consider a credit card that has fixed monthly payments instead of interest charges that blocks borrowers if they miss a payment – NAB and Commonwealth launched new products this month
Women were more likely to struggle with debt, with 18 per cent of them spending on plastic beyond the limit compared with 13 per cent of men.
Among Australians of all age groups and both genders, two million people have been in financial dire straits since March, most likely owing more than $10,000 on their credit card.
Half of those people are still borrowing at a level beyond their credit card limit, a Finder survey of 1,066 people across several age groups found.
Finder’s personal finance expert Kate Browne said seven per cent of all credit card customers were still over the limit.
‘Almost one million borrowers are currently over their credit card limit and risking taking a hit to their credit score,’ she said.
‘Some people who were already in debt are now struggling to make their repayments and on top of that are relying on credit cards to pay for essentials like rent and food pushing them over their limit.’
A Finder analysis of Reserve Bank of Australia data showed average credit limits of $9,892 for every borrower.
Still, with a majority of borrowers able to service their debts, average outstanding credit card balances in July stood at $2,768.
Separate Commonwealth Bank data from its own customers showed credit card spending in the week to September 18 was 4.3 per cent higher than a year earlier.
Even credit cards from the big banks marketed as low-interest rate products incur double-digit charges.
Westpac’s Low Rate Card charges 13.74 per cent interest after a 55-day interest-free period.
Customers now have the option of interest-free credit cards that simply block a consumer from using the card if they miss a payment instead of charging them late fees.
National Australia Bank’s new StraightUp Card allows consumers to pay the same fee every month.
A consumer with a $3,000 limit incurs a $20 monthly fee on the understanding they pay off a minimum $110 each month from their Visa credit card.
This month, the Commonwealth Bank also launched a similar Neo credit card with a $3,000 limit with a fixed monthly fee instead of interest charges and late fees.
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