Cut your credit card debt

page 38

The chief executive of a financial wellbeing app says he’s worried that Covid-19 has created the perfect storm for Australians to increase their debt levels through an increased use of credit cards.

Andrew Fleming, of Financial Mindfulness, says the federal government’s medical advice to “tap and pay where possible” will drive people away from using cash and towards their personal credit cards, increasing already high interest rate debt.

“There is almost one credit card for every adult Australian. In January 2020, just before the crisis, there was $42.6 billion owing on credit cards with $28.4 billion accruing interest. This situation, with lower incomes and increased use of cards, is a perfect storm for millions of Australians to deepen the financial holes they were already in.”

Commonwealth Bank says credit card usage increased 21% month on month from February to March 2020 as the pandemic hit its peak. This comes on top of PIN limits for contactless card payments being temporarily increased from $100 to $200 to reduce the need for physical contact with payment terminals in retail stores.

Fleming says the Financial Mindfulness app can assist people to develop sound credit card management skills, as well as managing bill payments, mortgages, unexpected expenses and stress.

It’s a timely tool given households are feeling insecure about their finances. A survey of more than 1000 Australians by Compare the Market says that of the 45% of households whose incomes are impacted by the coronavirus, four in five would be either freeing up or accessing cash by deferring mortgage or personal loan repayments, withdrawing funds from their super, breaking a term deposit, drawing on their savings or using a credit card less.