Australians aren't racking up credit card debt like they used to

SAM YEH/AFP/Getty Images
  • Australians continue to shun credit card debt.
  • Bank lending via credit cards contracted by 4.8% in the year to March, the second largest annual decline since June 2002.
  • The increased popularity of buy now, pay later services may partially explain the decline in credit card lending.
  • Elevated household debt levels, falling home prices and weak wages growth are other factors that likely explain why Australians are reluctant to take on additional personal debt.

With home prices falling in many parts of the country and wages growth still weak, Australians are understandably reluctant to take on additional debt in early 2019.

Especially when it comes to credit card debt.

According to Commsec, using data released by APRA, Australia’s banking regulator, lending to households via credit card fell by 4.8% in the year to March, the second largest annual decline since June 2002.

Commsec

The same trends in the APRA figures were also evident in data released by the RBA on Tuesday with credit for personal use falling by 2.8% in the year to March, near the lowest level seen since the GFC.

“Aussies have become increasingly wary of debt,” said Ryan Felsman, Senior Economist at Commsec.

“While mortgage debt remains elevated, the bottoming of the savings rate in the December quarter and decline in the annual growth rate of personal credit to nine-year lows points to a deleveraging of household balance sheets.”

Along with headwinds created by falling home prices and persistent weakness in household incomes, Felsman said the decline in credit card lending is also being impacted by consumers choosing alternate methods to pay for day to day expenses.

“Consumers are also preferring to use debit cards and ‘buy now, pay later’ payment methods, such as Afterpay to manage their finances,” he said.

From a broader perspective, Gareth Aird, Senior Economist at the Commonwealth Bank, said reduced turnover in the housing market, and tighter lending standards, likely explains the ongoing weakness in personal credit growth.

“Personal credit continues to fall and the rate of decline has accelerated,” Aird said.

“Greater use of mortgage offset accounts and a negative wealth effect from falling dwelling prices on vehicle sales and durable goods is having an impact, as is less use of margin loans.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.