Cost-of-living crisis fuels Aussie credit card market

Aussies are turning to credit cards to keep themselves afloat during the cost-of-living crisis. (Source: Getty) (Samantha Menzies)

The credit card market in Australia has been slowly declining for some time, after reaching its apex in mid-2017, with 16.8 million cards in circulation, equating to almost one card per adult. From there, however, the number of active credit cards began to drop, dipping to 14.6 million by the end of 2020.

The decline was largely due to the introduction of buy now, pay later options like Afterpay into the market, which were quickly adopted by younger Aussies. The arrival of COVID-19 in early 2020, subsequent rolling lockdowns, and economic uncertainty further accelerated the credit card downturn. By April 2022, there were a record-low 13.1 million cards in use.

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Since then, however, the credit card market has been experiencing a recovery of sorts, with more than 200,000 extra cards added to the mix.

(Source: supplied)

But this resurgence isn’t due to recovering financial stability. It's the result of increased dependency on credit.

Data shows that, since July 2021, there has been a steep and consistent increase in the amount Australians are spending on credit card purchases, rising to $33.9 billion per month, up from $24.5 billion. This dependency on credit is reflected in Finder’s Consumer Sentiment Tracker. It shows a significant rise in the number of households reporting they could not manage their finances without a credit card - jumping to 30 per cent of households in June 2023, compared to 18 per cent of households in May 2018.

Aussie debt has also jumped higher

Not only does data show the average Australian is increasingly reliant on credit cards to manage their finances, it also reveals debt has jumped 11 per cent in 12 months, leading to a rise in financial stress.

According to Finder research, the average Australian has $20,238 in debt outside of their mortgage, spread across loans and credit cards, with 30 per cent of Australians reported to be 'extremely' stressed about their current financial situation, a notable increase from 22 per cent a year ago​.

In too deep? These tips may help you pay off debt

For anyone who has accumulated credit card debt and is struggling to pay it off, a balance-transfer card may be the solution. These allow customers to transfer their balance and pay no interest for a year or more. Once you move to one of these cards, however, be sure to put a payment plan in place and hold off on making any more purchases, because any balance remaining at the end of the balance-transfer period will revert to the full interest rate.

Another option for those who would rather not open themselves up to more potential debt is to pay off your credit card with a personal loan - and cut up the plastic. While the average credit card interest rate sits at 19.8 per cent, many advertised personal loan rates are around half that - though the actual rate you get will depend on your circumstances.

Credit cards offer excellent rewards, particularly in the form of frequent flyer points - for those who are sure they can pay off the debt before the interest kicks in. For everyone else, however, opening yourself up to the high interest rates these cards charge can be a risky endeavour.

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