Aussies pay down a record $1.64 billion off their credit cards in May 2020
Recently released figures from the Reserve Bank of Australia (RBA) reveal that Australians managed to wipe out a total of $1.64 billion from their credit card debts in May 2020 alone. This is the biggest monthly drop in debt on record.
The RBA also found that there are 1.22 million fewer active credit card accounts compared to May 2019 and that people spent $5.82 billion less on their cards than they did in May 2019. These figures exclude commercial or business credit cards.
Covid-19 may have prompted people to get to grips with lingering debts
The record fall in outstanding debt seen in May, coupled with a similar drop in April, means that Australian credit card customers have reduced their interest–accruing debt by almost $3.2 billion.
This sudden reduction could be due to some people spending less on transport and entertainment during lockdown and so either not running up their balances or having more spare cash to pay down their card debts.
The pandemic has certainly made many of us look at our finances and take extra steps to save money so that they’re more able to cope with unexpected events.
The early super fund access scheme has probably had a large impact as well, with lots of people using some or all of the sudden cash injection to pay off old debts. Around five million Aussies will have made early withdrawals from their super funds by the time the scheme ends in late September, and while paying off debts can be a relief, some supers may be left looking a bit ragged.
Should you make an early super withdrawal to pay off credit card debt?
Making an early drawdown can feel like a windfall, as the scheme allows two tax–free releases of up to $10,000 each, but it’s not free money. Those handy dollars you suddenly have are the ones that should have been left in your super fund, earning interest so that you have a decent income and lifestyle after you stop working.
Of course, if you’re facing the loss of a home or a business, then an early super withdrawal can be a good solution. Similarly, if you’re struggling with an old debt that just won’t shift, lightening the load can help. However, even before you apply for an early drawdown, you should work out how you’re going to replace those super funds so that you’re not left short at retirement. Drawing down the minimum that you need is a good start and, going forward, replenishing your fund as soon as possible is the best way to bring your super back on track.
Aiming for your own personal low–debt record
If you’re one of the Aussies who has reduced or even cleared their credit card debt in recent months thanks to a super drawdown, then as well as feeling some relief, you might also be asking how you can maintain a low balance for the future. You’ll also be wondering how to return some money to your retirement fund
One easy way to control your credit card debt and free up some money to refill your super is to switch to a low–rate card. As you almost certainly already know, your monthly repayments are determined in part by the interest rate applied to your balance, so the lower the rate, the lower your payments.
If you’re someone who does tend to carry a balance on their card for a while, then reducing the interest you pay is a good way to keep your payments manageable.
InfoChoice’s pick of low–rate credit cards for August
As with any financial product, you always need to look at the small print to make sure you’re making the right choice. In the case of credit products, the comparison rate is important because it reflects the true cost of the credit card or loan because this rate has any fees and charges factored in. Here’s InfoChoice’s best low–rate cards for August 2020.
The CUA Low Rate credit card has a purchase rate of 11.99 per cent p.a. (comparison rate 11.99 per cent p.a.) and the usual annual fee of $49 is waived for the first year. This card is also useful for anyone looking to make a balance transfer as it offers 13 months at zero per cent interest, after which any unpaid balance is subject to the 21.74 per cent p.a. cash advance rate.
The Bankwest Breeze Platinum Mastercard offers borrowers a low purchase rate of 12.99 per cent p.a. and there’s an annual fee of $99. Unusually for a low rate card, the Breeze card includes complementary travel and purchase insurance and an interest–free period of up to 55 days.
Balance transfer customers will get a low rate of 2.99 per cent p.a. for 15 months, after which the rate reverts to 12.99 per cent p.a. which is good if there’s a chance some balance may still be remaining.
The NAB Low Rate card has a purchase interest rate of 12.99 per cent p.a. and an annual fee of $59, as well as an interest – free period of up to 55 days. While this card offers holders the opportunity to add an extra holder for free, there’s no other perks.
People looking to transfer a smaller balance to a lower rate will get a twenty–month zero per cent balance transfer period, after which the card reverts to the 21.74 per cent p.a. cash advance rate. There’s a one–off BT fee of two per cent of the balance to be transferred.
Compare hundreds of low rate and balance transfer cards here.