More Australians may be turning to credit cards to help manage their household expenses, according to a new report. With the cost of living putting pressure on many budgets, what can you do to better manage your credit?

According to the March 2024 Quarterly Consumer Credit Insights report from credit bureau Equifax, signs of financial stress amongst Australians are accelerating, with demand for credit cards climbing and arrears increasing across several credit types.

Fewer personal loans and BNPL, but more credit cards

While the report found that unsecured credit demand fell by 3.5% compared to the March 2023 quarter, given a 4.6% decline in personal loan applications and a 24.7% decline in buy now pay later (BNPL) applications, credit card applications increased by 13.2%.

Equifax advisory and solutions general manager, Kevin James, said that many Australians are seeking unsecured credit to relieve cost of living pressures. This was also shown by 29% growth in credit card limits, which Mr James said indicated that Australians are applying for more money on their cards.

Additionally, Mr James said that more Australians were behind on their personal loan repayments:

“While demand for personal loans has dropped, arrears in this portfolio are rising. In fact, personal loan arrears of more than 30 days past due have hit their highest point since 2020. And we expect this trend to continue - personal loan arrears tend to peak in Q2, as festive season spending becomes due. Taken together, these trends across credit cards and personal loans paint a picture of growing financial strain for consumers.”

The Reserve Bank of Australia (RBA) has also been keeping an eye on Australia’s outstanding credit card debts. The RBA’s February 2024 data shows that the total credit card bill attracting interest on personal credit cards is now $17.61 billion. This would be costing an estimated $8.8 million per day in interest charges, assuming an average credit card interest rate of 18.34%. This could also indicate that an increasing number of households are struggling to get on top of their debt in 2024.

Fewer mortgages, more car loans

The report also looked at demand for secured credit, such as mortgages and secured car loans. This was found to be 2.8% down year on year, thanks to a 4.5% decline in mortgage applications, offset by a 4.7% increase in auto loan applications.

Mr James said that with many Australians having already refinanced in the face of the fixed rate mortgage cliff, demand for new loans has dropped off. However, average mortgage loan limits and arrears were found to be continuing to rise:

“While mortgage demand has declined, the average limit per new mortgage account continued to grow at a consistent pace of 7% year-on-year - reflecting increasing house prices. Additionally, we’ve seen higher mortgage stress this quarter despite stable interest rates; mortgage arrears increased across all categories. Arrears of 30-89 days past due increased 15% year-on-year, while arrears of 90+ days past due were up 17%.”

How can you manage financial stress?

If you can find ways to manage your debts and personal finances rather than missing repayments and defaulting on your loans, you may be able to minimise the risk to your credit score. This could help to keep you from ending up in more financial stress further down the road, as a bad credit could make it harder to borrow more money in the future.

There are several different strategies available to Australians who are experiencing financial stress. The best option for you may depend on your exact circumstances and the goals you want to achieve.

Some of the potential options include:

• Switching to lower repayments such as interest only
• Cutting expenses where possible
• Using technology to automate repayments and/or deposits into savings or investments
• Asking for a better deal, whether by negotiating with your current lender or switching a new one
• Consolidating debts and/or transferring balances

You could also consider contacting your bank and/or credit provider to enter a financial hardship arrangement, or contact the National Debt Helpline to get in touch with a financial counsellor.

The total household credit card debt attracting interest charges has risen for the fourth month in a row, as the country finds itself on a debt treadmill.

The latest RBA credit card statistics, released today for the month of March, shows the total credit card bill attracting interest on personal credit cards is now $17.66 billion, a rise of almost $49 million from the previous month, and an increase of almost $375 million since November 2023.

While post-Christmas credit card debt is common, it usually starts dropping from the month of March. This time around Australia’s credit card debt problem has instead worsened.

RateCity.com.au analysis of RBA data shows this is the first time debt has risen in the month of March since 2015.

RBA: Credit card debt attracting interest charges (excludes commercial cards)

Source: RBA, released 7 May 2024, original data, excludes commercial cards.

Change in debt accruing interest each March 2015-2024 (%)

Source: RBA, released 7 May 2024, original data, excludes commercial cards.

Credit card spending ticks up in March

Spending on credit cards rose in March in seasonally adjusted terms, however, overall spending was down, month-on-month across both credit and debit cards.

Total value of transactions: personal credit and debit cards

Source: RBA, released 7 May 2024, seasonally adjusted data, excludes commercial cards.

The number of credit card accounts continues to rise

The number of credit card accounts rose for the 18th consecutive month.

As of the end of March, there were 12.68 million personal credit card accounts. This is almost 300,000 more than the recent trough in May 2022, but down considerably from the peak of credit card accounts in June 2017 when there were 15.45 million active credit card accounts.

RBA credit card statistics: March 2024 (Note: commercial cards are excluded)

Source: RBA, released 7 May 2024, original data, excludes commercial cards.

RateCity.com.au research director, Sally Tindall, said: “For eight years we’ve seen credit card debt decline in the month of March, but not this time around.”

“We’re very used to seeing households pile up the debt over summer, but the fact that many are still struggling to reduce this debt in March is cause for alarm,” she said.

“A recent RateCity.com.au survey found almost one in seven credit card users were relying on their card to get them through to payday - a strategy that’s destined to fail, and quickly.

“Plugging a budget black hole with the plastic can put you on a debt treadmill that’s difficult to get off.

“If you are struggling with credit card debt, don’t put your head in the sand. Take the time to come up with an action plan that sees you clear the slate clean entirely,” she said.

Solutions for managing credit card debt

1. Call your bank and ask for help. The bank will work with you to find a solution, whether it’s changing your interest rate or putting you in financial hardship.
2. Tell your other providers you are in financial hardship. Many providers will see if you can switch to a cheaper plan or put you on a payment plan. 
3. Consider a circuit breaker. Renting out a spare room, moving somewhere cheaper and leasing out your home or selling up are options you may decide to consider. 
4. Get independent financial advice. Call the national debt helpline on 1800 007 007.

Australia’s cash rate is set to remain on hold at 4.35 per cent at the end of the Reserve Bank’s Monetary Policy Meeting tomorrow, however, the Board may put borrowers back on notice that another rate hike could be required.

The minutes of the last meeting in March revealed that the Board did not actively consider the case for a cash rate hike at that meeting. This was the first time the RBA did not canvas this as an option since April 2022.

This week’s meeting, however, is likely to take a different tone.

The latest CPI figures from the ABS show the battle against high inflation is slowing, with trimmed inflation still sitting well above the target band at 4.0 per cent annually, and the monthly indicator recording a slight rise in inflation in the month of March.

ABS monthly CPI indicator (annual)

Source: ABS

How much would a 0.25%-point increase cost borrowers?

A borrower with a $500,000 mortgage and 25 years remaining at the start of the hikes would see their monthly repayments rise by $74 if the RBA raises the cash rate to 4.60 per cent.

While this is not a huge amount, combined with what would then be 14 hikes in total, it would amount to an increase of as much as $1,284, if a borrower has not renegotiated their loan since the start of the hikes.

Potential impact of a 0.25% pt hike on monthly repayments

Based on a borrower who has not renegotiated their loan since the start of the hikes

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining who has not renegotiated since the start of hikes. Starting rate is the RBA avg. existing owner-occupier variable rate of 2.86% in April 2022. Based on a 0.25% pt rate hike in November 2024.

What should borrowers do?

Borrowers should start preparing their finances for at least one more rate hike, just in case.

They can do this by contacting their bank and asking for a rate cut.

If a home loan customer gets 0.25 percentage points knocked off their current interest rate, but they keep their monthly repayments the same, they would instantly be ready for another hike and paying down extra in the meantime.

What is a decent mortgage rate at this point?

RBA data shows, in the month of February 2024, the average variable rates were:

• Owner-occupier variable: 6.36%
• Investor, variable: 6.66%

Borrowers picking up the phone to haggle with their lender should aim for a rate below this average, armed with the knowledge there are a multitude of lenders advertising rates under this mark, although some requirements such as a big deposit may apply.

RateCity.com.au data shows:

• 30 lenders are still offering at least one owner-occupier variable rate under 6 per cent. While the list is dominated by smaller banks and credit unions, it also includes HSBC, Up Bank, a subsidiary of Bendigo Bank and Unloan, a division of CBA.
• 22 lenders are still offering at least one investor variable rate under 6.25 per cent. This includes Bendigo, Newcastle Permanent and Greater Bank.

Cash rate cut forecasts in retreat

CBA and Westpac shuffled back the timing of their RBA rate cut forecasts on the back of last month’s CPI results.

Both banks had previously pencilled in cuts for September, however, this has now shifted to November.

CBA has also reduced the number of cuts from six to five.

NAB and ANZ’s forecasts remain unchanged, however, ANZ has said there is a risk the cuts might not materialise until later.

Current big four bank cash rate forecasts

Source: RateCity.com.au.

RateCity.com.au research director, Sally Tindall, said: “Australia’s inflation battle is far from won and the Board could well put the country back on notice that further hikes may be necessary.”

“We know from the minutes of the last meeting the RBA did not consider the case for a rate hike. This was the first meeting the Board did not proactively review the arguments in favour of increasing the cash rate since April 2022,” she said.

“Instead of “not ruling anything in or out”, which was the RBA’s message back in March, there’s a chance Governor Bullock will put Australians back on notice by explicitly referring to rate hikes once again.

“Looking at the data, unemployment is still incredibly low at 3.8 per cent, the property market’s Teflon coating remains intact, with the latest CoreLogic figures showing 15 months of growth, and money in the bank from households has hit a new record high.

“This all gives the RBA cover to fire off another hike, if the next couple of rounds of inflation data warrants it.

“Borrowers should not sit idly by, waiting for the RBA to make its next move, but instead ask their bank to review their current rate.

“One 0.25 percentage point cut to their current mortgage rate is all borrowers need to prepare themselves for another rate hike, especially if they keep their mortgage repayments the same.

“That said, don’t settle at a 0.25 percentage point cut. The average owner-occupier variable rate is currently 6.36 per cent. Being below average has never been so important.

“Cash rate cuts will come, but the timeline for these cuts has taken a backwards step.

“The big four bank economists still predict there will be at least one cash rate cut this year, however, if you’ve got a mortgage, plan for the worst and hope for the best,” she said.

Lowest variable owner-occupier rates on RateCity.com.au

Excludes introductory rates and green loans

Source: RateCity.com.au. Rates are for borrowers paying principal and interest. Other lending criteria may apply.

Lowest variable investor rates on RateCity.com.au

Excludes introductory rates and green loans

Source: RateCity.com.au. Rates are for borrowers paying principal and interest. Other lending criteria may apply.

The proportion of borrowers opting for a fixed rate hit a new record low of just 1.40 per cent in March, according to ABS statistics released today.

The latest ABS lending indicators, released today, show just $664 million worth of loans opted for a fixed rate, out of the $47.5 billion worth of new and refinanced loans approved in the month of March.

February was the previous record low of just 1.44 per cent.

The peak in the popularity of fixing in Australia was back in July 2022 when 46 per cent of all new and refinanced loans opted for a fixed rate.

Proportion of new loans opting for a fixed vs variable rate, last 3 years

Source: ABS Lending Indicators, original data. Based on the value of new and refinanced loans funded in the month.

Refinancing drops to lowest level in over two years

The value of refinanced loans dropped by 2.5 per cent this month, down to $16.02 billion – the lowest level since January 2022.

The drop comes following a mass exodus from the cashback market, with Westpac subsidiaries St George, BankSA and RAMS announcing today they will also be wrapping up their cashback incentives.

Value of loans refinanced in March

Source: ABS lending indicators, seasonally adjusted data.

New lending roars ahead, fuelled by higher prices

The value of new mortgages continued to pick up pace in March, led by investors which saw a 3.8 per cent increase from the previous month, in seasonally adjusted terms.

Compared to the same time a year ago, investor lending has risen by an astounding 31.1 per cent, while owner-occupier lending has risen by 11.4 per cent.

The sharp rise in new lending is likely to be primarily fuelled by rising property prices, with the ABS noting that the number of new loans approved was ‘broadly similar’ to the results from last March, in original terms (seasonally adjusted data not available).

Value of new mortgages: March

Source: ABS lending indicators, March 2024, released 3 May 2024, seasonally adjusted data.

First home buyers

Source: ABS lending indicators, March 2024, released 3 May 2024, seasonally adjusted data.

Average loan sizes

Average new owner-occupier loan sizes largely increased across the country this month, with notable gains in the Northern Territory, South Australia and Western Australia from the previous month.

Since the start of the rate hikes, the average loan sizes have risen in five states and territories, with the biggest increases recorded in South Australia (+11.1%), Western Australia (+10.7%) and Queensland (+8.4%), despite the 13 RBA rate hikes.

Only New South Wales, Victoria and the ACT have seen the average new owner-occupier loan sizes drop since the start of the hikes.

Average new loan sizes - owner-occupier mortgages

Source: ABS lending indicators, original data. Owner-occupier loans only, excludes refinancing.

RateCity.com.au research director, Sally Tindall, said: “Fixed rates continue to sink to new lows as borrowers wait with bated breath to get a clearer idea of what the RBA’s next move will be.”

“The refinancing storm is well and truly over, with the value of loans switching to a different lender in March dropping to just $16.02 billion,” she said.

“While in dollar terms there is still an impressive amount of loans jumping ship, it’s the lowest level since well before the start of the rate hikes and yet another sign the refinancing market is settling into a much cooler new norm.

“The value of new loans approved in March has risen sharply since the same time a year ago, as buyers battle it out to place the winning bid on a limited amount of stock.

“Investor lending, in particular, has risen by a massive 31 per cent compared to the same time a year ago, despite the fact we’ve had three more RBA hikes within this time.

‘It’s amazing to see what the lure of potential capital gains can have on the market,” she said.

Westpac subsidiaries St George, BankSA and RAMS have announced they will be shelving their home loan cashback incentives from next month.

St George and BankSA currently offer $2,000 cashback to refinancers, while RAMS is offering $3,000. Borrowers now have until 30 June 2024 to apply and must settle by 31 October 2024 for the cashback.

The move comes almost a year after Australia’s biggest bank, CBA, dropped the controversial incentive on 31 May 2023, with Westpac and NAB ending their cashback offers a month later on 30 June 2023.

ANZ is the only big bank still offering the perk, with a $2,000 cashback for refinancers and a $3,000 cashback for first home buyers, provided they meet the eligibility criteria.

When the Westpac subsidiaries wrap up their cashback deals at the end of next month, there will be just nine lenders still advertising home loan cashback incentives, provided no others pull the pin before then.

List of lenders currently still advertising home loan cashback deals

Source: RateCity.com.au. Notes: Credit Union SA only offers cashback to current and former members of the SA education community. Excludes cashback deals with third-parties. LVR requirements may apply.

RateCity.com.au research director, Sally Tindall, said: “Westpac’s decision to pull the pin entirely on the cashback game comes as no surprise.”

“While the bank has seen decent growth in its home loan book over the last 12 months, it’s likely to have decided the equation no longer stacks up, particularly under the current profit margin pressures,” she said.

“Over the last 12 months, banks big and small have ditched their cashback deals in a bid to end the refinancing wars – and it’s worked.

“The latest ABS statistics show the value of refinanced loans in the month of March has dropped by 25 per cent since the peak in July 2023, on the back of a mass exodus of lenders from the cashback game.

“When St George, BankSA and RAMS end their cashback offers on 30 June, just nine lenders will still be offering these incentives, provided more don’t pull up stumps before then. That’s a huge drop from the 35 lenders that were offering this incentive in March 2023.

“ANZ is the only big four bank still in the cashback market, but with Westpac subsidiaries now exiting stage left, there’s every chance ANZ’s incentive will meet a similar fate in coming months.

“The offer of cold hard cash at a time when borrowers are strapped financially can be hugely tempting, but one-off perks only get them so far.

“Households looking for long-term rate relief are likely to find they’re better off opting for a cracking rate, particularly on larger loans and especially in the longer term,” she said.

More Australians may be turning to credit cards to help manage their household expenses, according to a new report. With the cost of living putting pressure on many budgets, what can you do to better manage your credit?

According to the March 2024 Quarterly Consumer Credit Insights report from credit bureau Equifax, signs of financial stress amongst Australians are accelerating, with demand for credit cards climbing and arrears increasing across several credit types.

Fewer personal loans and BNPL, but more credit cards

While the report found that unsecured credit demand fell by 3.5% compared to the March 2023 quarter, given a 4.6% decline in personal loan applications and a 24.7% decline in buy now pay later (BNPL) applications, credit card applications increased by 13.2%.

Equifax advisory and solutions general manager, Kevin James, said that many Australians are seeking unsecured credit to relieve cost of living pressures. This was also shown by 29% growth in credit card limits, which Mr James said indicated that Australians are applying for more money on their cards.

Additionally, Mr James said that more Australians were behind on their personal loan repayments:

“While demand for personal loans has dropped, arrears in this portfolio are rising. In fact, personal loan arrears of more than 30 days past due have hit their highest point since 2020. And we expect this trend to continue - personal loan arrears tend to peak in Q2, as festive season spending becomes due. Taken together, these trends across credit cards and personal loans paint a picture of growing financial strain for consumers.”

The Reserve Bank of Australia (RBA) has also been keeping an eye on Australia’s outstanding credit card debts. The RBA’s February 2024 data shows that the total credit card bill attracting interest on personal credit cards is now $17.61 billion. This would be costing an estimated $8.8 million per day in interest charges, assuming an average credit card interest rate of 18.34%. This could also indicate that an increasing number of households are struggling to get on top of their debt in 2024.

Fewer mortgages, more car loans

The report also looked at demand for secured credit, such as mortgages and secured car loans. This was found to be 2.8% down year on year, thanks to a 4.5% decline in mortgage applications, offset by a 4.7% increase in auto loan applications.

Mr James said that with many Australians having already refinanced in the face of the fixed rate mortgage cliff, demand for new loans has dropped off. However, average mortgage loan limits and arrears were found to be continuing to rise:

“While mortgage demand has declined, the average limit per new mortgage account continued to grow at a consistent pace of 7% year-on-year - reflecting increasing house prices. Additionally, we’ve seen higher mortgage stress this quarter despite stable interest rates; mortgage arrears increased across all categories. Arrears of 30-89 days past due increased 15% year-on-year, while arrears of 90+ days past due were up 17%.”

How can you manage financial stress?

If you can find ways to manage your debts and personal finances rather than missing repayments and defaulting on your loans, you may be able to minimise the risk to your credit score. This could help to keep you from ending up in more financial stress further down the road, as a bad credit could make it harder to borrow more money in the future.

There are several different strategies available to Australians who are experiencing financial stress. The best option for you may depend on your exact circumstances and the goals you want to achieve.

Some of the potential options include:

• Switching to lower repayments such as interest only
• Cutting expenses where possible
• Using technology to automate repayments and/or deposits into savings or investments
• Asking for a better deal, whether by negotiating with your current lender or switching a new one
• Consolidating debts and/or transferring balances

You could also consider contacting your bank and/or credit provider to enter a financial hardship arrangement, or contact the National Debt Helpline to get in touch with a financial counsellor.