Are credit cards as good as they used to be? 

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Is credit card usage in decline in Australia? 

The answer is interesting and multi-faceted. 

The number of active credit card accounts has been in sharp decline since January 2018 ( 2019) and the total credit card debt held by Australians declined by record levels in early 2019. 

According to Reserve Bank of Australia data, cash advance transactions are also in decline. However, the value and volume of purchase transactions remained stable. These metrics were growing before the COVID-19 pandemic too, even after seasonal spending around Christmas (RBA 2020). 

What do these statistics say about Australians’ relationship with credit cards?


Credit cards’ history in Australia 

Since credit cards were introduced in Australia by Bankcard in 1974, many millions of us have used them to make purchases. For a particular generation of Australians, credit cards were a source of opportunity. They allowed you to make big-ticket purchases, buy things you want, and potentially help you to live your version of the Australian dream. 

If credit cards have died off, how are Australians currently making these dreams happen?


Younger generations are invested in Buy Now, Pay Later (BNPL) services 

The use of “Buy Now, Pay Later” (BNPL) services is quickly growing in Australia. 

While Roy Morgan’s data (2019) shows that overall use across the country is low, at 9.4% of the population, it is the demographic usage of BNPL that is most indicative of current trends. According to Illion, while 57% of Australians under 30 hold a credit card, many also use BNPL. The 43% who don’t own a credit card are also more likely to use BNPL services than complete a credit card application (Illion 2019). 

While young Australians may be more mindful of getting into debt, something we’ll move onto shortly, this trend may also have been driven by retailers. With the retail landscape as competitive as ever, one way to differentiate is to offer a variety of payment options. Offering BNPL is one of several ways in which retailers can gain a competitive edge.


Could other factors be influencing credit card usage? 

The rise of BNPL is not the sole reason for a decline in credit card usage across Australia. 

Indeed, we’ve seen that it’s only the number of active credit cards that are in decline, rather than the value and volume of transactions. This could indicate several factors at play, in addition to the availability of BNPL reducing the need or desire to open a new credit card account, including: 

  • Australians may be becoming more financially savvy around their use of credit cards. Many people may be continuing to use their credit cards while repaying a more significant proportion, or all, of their monthly balance, thus reducing interest payments and overall debt levels. 
  • It may be harder to open a new credit card account due to regulations around lending. At the same time, younger Australians who are keen to take out their first mortgage may be looking to limit their potential debt exposure. 
  • In addition to BNPL, other forms of borrowing as alternatives to credit cards continue to be popular. For example, the volume of personal loans taken out by Australians continued to grow throughout 2019 (Finder 2019).

Are credit cards just a debt trap? 

While some might believe so, credit cards can be a valuable financial resource. If you want access to funds but want to make sure you act responsibly, there are several things you can do to avoid getting into credit card debt.


Adjusting your spending habits 

Adjusting your spending habits can help keep your credit card bill in check. Make sure you only buy items on your card that you need and can afford to repay within your billing cycle. 

Longer-term, you should look to save to give you the ability to pay for things upfront. Being in a better financial position may enable you to access better-value forms of borrowing, such as a personal loan, rather than a credit card, for big-ticket purchases.


Questioning whether you really need to make purchases 

One way to save cash and to avoid getting into debt is to question every purchase you make. 

Whether it’s keeping up with the latest trends or catching up on post-pandemic outings, businesses will encourage you to spend. You might put yourself under pressure to start shopping again. 

Question why you’re doing this and consider what the long-term impact on your finances might be.


Are credit cards as good as they used to be? 

How “good” credit cards are depends on how the owner of a credit card chooses to use them. 

If you have a new credit card that offers 0% interest on purchases for 12 months, and you’re able to make a purchase and repay the balance before any interest is charged, a credit card might be an excellent financial resource. 

In contrast, if you want to use a credit card to make an expensive purchase and can only afford to repay the minimum payment each month, you’re better off trying to get a personal loan or simply not making the purchase. 

While the rise of flexible payment options such as BNPL will likely continue to reduce the number of credit card accounts opened by younger age groups, the principles behind sensible usage of credit cards, and thus how “good” they are, will not change.


Disclaimer:  This article contains general comments and recommendations only.  This article has been prepared without taking account of your objectives, financial situation or needs.  Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product. The information in this article is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may affect the accuracy of the information.

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