Australians moving away from credit cards, personal loans – study

Mortgage borrowers among those less likely to have a credit card

Australians moving away from credit cards, personal loans – study

An estimated 500,000 Australians have moved away from credit cards and personal loan debt, according to a new study by Equifax. The change appears to have been spurred in part by the Early Super Access Scheme.

The program, available from April 20, 2020 to Jan. 1 of this year, allowed Australians to access emergency super withdrawals to mitigate the economic impacts of the COVID-19 pandemic. This correlates with the peak of closed credit card and personal loan accounts during the time frame examined by Equifax.

“There’s no doubt the Early Super Access Scheme had a marked effect on the superannuation market,” said Kevin James, general manager of advisory and solutions at Equifax. “Our data shows closed unsecured accounts peaked in the first three months after the scheme came into effect, likely accelerating the trend we were already seeing in this space. Australians used these emergency funds to get on top of their finances by paying off their personal debt, rather than increasing their discretionary spending as some originally feared.”

Total credit card and personal debt fell by 13.2%, equivalent to about $20.8 billion, according to Equifax. Average individual debt decreased by 8.4%, or about $1,400. The data demonstrated a steady decline in personal loans and credit card usage overall, despite the financial challenges many experienced during the pandemic, Equifax said.

While the average credit limit for newly opened credit card accounts held steady at $8,700, the number of Australians with multiple cards is on a steady downward slide, with many seeming to want to streamline their options by closing their additional cards. That also contributed to declining credit card usage during the pandemic, Equifax said.

Mortgage borrowers were a key group that were less likely to have a credit card. Among those under 30, cardholders declined by 24%, while cardholders declined 12% among those between 30 and 40 years old.

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“Though we have been observing the shift from credit cards to buy-now-pay-later services for some time, particularly among younger consumers, the pandemic has accelerated the decline of the rainy-day credit card,” James said. “It’s encouraging to see that Australians have taken positive steps to pay their debts, avoid credit traps and improve their financial health. We anticipate this trend will continue.”

The average limit for personal loans has increased, from an average of $16,300 in January 2020 to $19,400 in July 2021, Equifax reported. This is likely because personal loans have benefitted from the strength of the used car market and home renovations, the study said.