With the cost of living outpacing wage growth, Australians are facing an unprecedented financial challenge. Recent findings from Finder show that a significant number of Australians have reached the limits of their credit cards and sought additional credit, a trend that is contributing to the highest level of credit card debt in nearly four years.
Increasing Financial Strain Amid Rising Costs
High mortgage rates and soaring living costs are putting a significant strain on household budgets across Australia. According to Finder’s recent study, over one million Australians have reached the limit of their credit cards and have subsequently opened a second one to help cover rising expenses.
This shift is not simply a result of impulsive spending; it is a clear reflection of the ongoing struggle to make ends meet as living costs outpace wage growth.
The average credit card balance per consumer has risen to $3,480, marking a significant increase in debt levels across the country. Finder’s personal finance expert, Sarah Megginson, highlighted that with limited savings available to absorb these higher costs, Australians have no choice but to use credit cards as a financial lifeline.
A Surge in Credit Card Spending and Interest Payments
The sharp rise in credit card debt comes as Australian consumers continue to grapple with a combination of increased living expenses and interest rates on their credit card balances. The Reserve Bank of Australia‘s data shows that credit card transactions grew by 1% in March alone, amounting to a $382 million increase.
More concerning, however, is the interest rate attached to these cards. On average, Australians are paying an interest rate of 18.49%, which has contributed to an additional $3.3 billion in interest payments over the past year.
While credit cards are a useful tool for managing cash flow, financial advisors stress the importance of having a clear repayment strategy to avoid falling into a “debt spiral.”
Jess Bell, a financial advisor with Findex, explained that if used properly, credit cards can offer individuals flexibility and rewards. However, the key is to ensure that the balance is paid off in full each month, a practice that many Australians are currently failing to maintain.
For those unable to keep up with repayments, missed payments result in late fees and additional interest charges, which only exacerbate the problem. In fact, Finder’s previous research found that 13% of Australians had fallen behind on their repayments, with many accruing significant debt due to late fees and interest.
In response to these issues, experts recommend that Australians review their budgets, set realistic repayment goals, and consider consolidating their debts to regain financial control. With smart financial planning, individuals can navigate these tough times without risking long-term financial consequences.
