Australians paid off more than $750 million in credit card debt in July as households braced for the country’s first recession in close to three decades.
Consumers have steadily turned away from credit cards over the past year, but the onset of the coronavirus pandemic has accelerated that trend.
Now, cash-strapped households are taking advantage of tax returns and early superannuation withdrawals to pay down interest-accruing debts.
Australians had $22.48 billion in credit card accounts accruing interest at the end of July, according to the latest Reserve Bank figures.
That marks a 3.24 per cent decline on June’s $23.23 billion.
Although the $750 million drop may seem small in comparison, it comes as part of a broader trend that has seen Australians pay off $5.7 billion since April.
This is more than double the amount paid off between August 2019 and March 2020 ($2.3 billion).
“Aussies have been falling out of love with credit cards for years,” Canstar finance expert Steve Mickenbecker said.
“But the COVID-19 period has led some to call time altogether and ditch their credit card.”
Even those who aren’t cancelling their cards outright are taking a more prudent approach, choosing to pay off debts more quickly rather than accrue more interest, Mr Mickenbecker added.
“Hopefully we can sustain the good intentions,” he said.
Tax, super used to pay off debt
Australians have taken $32.6 billion from their superannuation under the federal government’s early access scheme.
Although there has been some debate about how that money is being spent, Mr Mickenbecker said at least some of it is being used to pay down credit card debts.
“Necessity will mean some may have to use the credit card again, but hopefully only for the minority and the rest will have kicked the habit,” he added.
But super is not the only lump sum being used to pay down debts.
RateCity.com.au research director Sally Tindall said some households are using tax returns to alleviate debt.
Figures provided to Rate City by the ATO show 2.6 million people have already received a tax refund – with an average size of $2395.
“Using lump-sum payouts like tax returns to pay off a credit card that’s accruing interest every month may help families stay afloat in the long run,” Ms Tindall said.