The cost of living crisis is forcing more Australians to fall behind on their credit card bills, while others are raising their limits to make ends meet, new data reveals.
More than one in eight credit card customers miss their minimum monthly payment for 30 days or more, which can trigger a spiral of higher fees and interest payments.
And rising bills, including rising mortgage payments, have destroyed many families’ savings, with 2.2 million people changing their credit card limits.
Nationwide, one in 20 credit card holders increased their limit over the past year.
The alarming data from financial comparison group Finder is released as the Reserve Bank warns the economic pain could continue.
Weak labor productivity could delay any potential rate cuts or even increase inflation, with the cash rate now at a 12-year high of 4.35 percent, he warned.
Finder’s head of consumer research Graham Cooke said many people were reliant on credit cards because they had very little savings – 45 per cent of people had less than $1,000 in the bank.
“Higher living costs have exposed vulnerabilities in household finances, many of whom have little emergency savings to fall back on,” he said.
“Suddenly, some households have significantly increased their expenses and are turning to plastic to make up the difference.”
Surprising number of Australian consumers miss credit card payment deadlines during cost of living crisis (file image pictured)
What should you do?
Cooke said paying off credit card debt in full each month was the best way to avoid charges.
“Australians should be careful to track their plastic spending and pay it in full each month to avoid interest charges,” he said.
Finder’s head of consumer research Graham Cooke said many people were reliant on credit cards because they had very little savings – 45 per cent of people had less than $1,000 in the bank.
Interest charges also negate rewards points.
“The interest charged on late payments basically negates all the rewards you would otherwise earn, so make sure you pay off the balance in full each month,” he said.
If paying off a credit card every month isn’t possible, Cooke suggested trying to pay at least a minimum amount.
‘If money is tight, you also have the option of paying only the minimum amount shown on your statement. As long as you pay before the due date, you can avoid late fees,” he said.
“But the more you can pay off the balance, the better.”
Those with a lot of credit card debt are advised to get a balance transfer credit card, which can offer two-year terms to pay off a bill.
“Finally, for those paying high interest, transferring their debt to a balance transfer card is a great option and will give them an interest-free window to pay it off, even if they resist the temptation to spend more,” Mr Cooke said.
Inflation danger
Minutes from the Reserve Bank’s March meeting, released on Tuesday, suggested a rate cut could be delayed as a result of productivity falling last year by 0.4 per cent.
“They considered the implications for monetary policy if productivity did not increase as assumed, recognizing that the associated economic adjustment may not be smooth or immediate,” the minutes said.
Inflation in February stood at 3.4 per cent, according to the Australian Bureau of Statistics’ least comprehensive monthly reading.
This was only marginally above the RBA’s 2 to 3 percent target.
A significant number, or 13 percent, of credit card customers miss their minimum monthly payment for 30 days or more, which means higher fees (stock image shown).
But the RBA warned inflation could still remain high as $500 electricity rebates expire and labor costs push up consumer prices.
“A rebound was anticipated in the coming quarters as recent declines in fuel prices and the pace of decline in prices for some household goods were not expected to persist and electricity rebates were legislated to expire,” the minutes said.
“Members noted that the data were consistent with continued but declining excess demand and strong domestic cost pressures for both labor and non-labor inputs.”
Finder surveyed 546 Australians with a credit card in January 2024 as payment for its Consumer Sentiment Tracker, which surveyed 61,000 people.
A separate survey of 3,214 people between January and March found that 45 percent of respondents had less than $1,000 in savings.