The $1.1 billion GOOD news to come from lockdown

Image of Australian banknotes with image of covid testing sign
Australians have been doing it tough in lockdown, but there's been one expected upside for some. (Source: Getty)

Australians have used time in lockdown to wipe $1.1 billion in debt off their credit card bills – all in a single month, new data has shown.

Fresh Reserve Bank data showed that outstanding balances on credit cards reduced by 5.5 per cent, or $1.11 billion, between June and July.

This is the highest monthly amount of debt paid back over the past year, and shows Aussies staying at home chose to spend less, save more and curb their debt balances.

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The total amount of debt Aussies have on personal credit cards is now at $18.9 billion, the lowest level since February 2004, according to RateCity analysis.

RateCity research director Sally Tindall described the wiping of $1.1 billion in credit card debt in a single month as a “mammoth effort”.

“Lockdowns are a kick in the guts, particularly for those who can’t work, but it has helped many households focus on clearing bad debt,” Tindall said.

“While the government hasn’t let people raid their super this time around, savings from lockdown living and tax returns may have helped some families find spare cash.”

Stack of multicolored credit cards close-up view with selective focus.
Aussies are using time in lockdown to wipe credit card debt. (Source: Getty) (alexialex via Getty Images)

Australians in lockdown last year wiped nearly $7 billion in debt in six months, and the current lockdowns are following the same trend, she added.

“While we’d all rather be out of lockdown and living freely, at least thousands of families can breathe a sigh of relief knowing their credit card debt no longer has a stranglehold on them.”

Recent CBA data also showed lockdowns have caused a softening in household card spending in Victoria, Tasmania, South Australia and Queensland.

Lockdowns widen inequality: Some doing it tougher than others

While a smaller credit card debt is certainly good news for many, not all have the luxury to curb spending and still comfortably get by.

Australia’s economy has been rocked by the recent spate of Delta-triggered lockdowns, which are costing $3.2 billion a week, according to Treasurer Josh Frydenberg.

State and Federal Governments have responded with economic support packages, including disaster payments and business grants.

But it’s often the most vulnerable in insecure work and low incomes that are hardest-hit by the COVID-19 crisis, advocates have argued.

A recent report by the Australian Council of Social Services (ACOSS) and the University of NSW laid bare the stark relationship between income and health.

People in the highest-paid income group are twice more likely to report their health as good, very good or excellent (60 per cent) compared to those in the lowest income group (33 per cent). Those on Centrelink payments are also twice more likely to have mental health conditions (50 per cent) than those who receive wages or salary (18 per cent).

Meanwhile, new Canstar data reveals 42 per cent of Australians are delaying some financial decisions because of 2021 lockdowns. Of these, around a third have paid bills late, held off on medical procedures (22 per cent) or renewing insurance (17 per cent).

“It has taken another extensive lockdown to get card holders back on track,” said Canstar financial services executive Steve Mickenbecker.

“Lower spending has at this stage dragged credit card debt down. Hopefully this will be sustained, but the deeper we get into lockdown the tougher that will become.”

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Spending to roar back when economy rebounds

Mickenbecker said he believes the fall in spending and debt won’t last long, amid reports that Australia Post is buckling under the sheer volume of parcels being sent.

“They may feel less inhibited about spending than in 2020 with the path to recovery clearer this time around,” he said.

“With $18.90 billion in credit card debt still accruing interest, it’s hard to see households extensively repaying debt until there are wage increases.”

CBA expects household spending to rise in 2022 as vaccination rates increase and the economy reopens.

“The household savings rate remains elevated at 9.7 per cent, underpinned by continued government Covid-19 support payments, which could be used to ‘revenge spend’ once lockdowns ease,” said CommSec chief economist Craig James.

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