Consumers Paying Off Credit Cards After The Christmas Debt Binge

Sydney Morning Herald

Friday March 17, 2006

Matt Wade and Jessica Irvine

AUSTRALIANS have been on a post-Christmas debt reduction drive, slashing more than $700 million from the collective credit card bill.

The traditional festive season debt binge had pushed total card debt to a record $34.2 billion by the end of last year. But cardholders cut that balance back to $33.5 billion in January, supporting claims by some analysts that many households are consolidating their personal finances.

Consumers spent a record $16.17 billion on credit cards in December but pulled that back to $13.76 billion in January, the lowest total since last July.

In another sign that card borrowers are keeping closer tabs on their debts, the growth in cash advances has been flat for more than a year.

Cash advances, a very costly method of obtaining credit, totalled $988 million in January, less than the $1 billion withdrawn in December 2004.

A senior economist with CommSec, Craig James, said the lack of growth in cash advances over the past 12 months showed consumers had not "returned to the profligate ways" of a few years back.

Even so, the collective credit card debt was the second highest ever and the level of household debt remained very high by international standards.

The ratio of household debt compared with household income continues to rise and has reached 170 per cent - one of the highest in the world.

Australia's household savings ratio has been negative for years, indicating households have been spending more than they earn for a considerable period.

The credit card figures show the number of cards on issue continues to climb as consumers take up new low-interest, low-fee cards on the market.

There were a record 12.6 million cards on issue in January - almost a million more than a year earlier. The average balance per card was $2656.

Meanwhile, a bank has been forced to apologise after it inadvertently sent credit card applications to people as young as 13.

A spokesman for the Bank of Queensland, Paul Turner, yesterday blamed a database glitch for the error, which resulted in applications being sent to "three or four" under-aged clients.

'It's a mistake and we're sorry about it, but it's a pretty minor mistake," Mr Turner said.

The problem was discovered when the mother of a 13-year-old boy rang ABC radio to complain that her son, who had a trust fund with the bank in his name, had been offered a credit card.

Contracts made with minors are non-enforceable, meaning under-18s can get a credit card only by having a parent or guardian sign up as the primary cardholder.

A spokeswoman for the NSW Consumer Credit Legal Centre, Katherine Lane, said it was not uncommon for credit card applications to be sent to unsuspecting Australians but there was "no law against it".