Debit cards more popular than ever but Australians still hooked on credit

The abstract nature of credit means people feel less emotionally connected to the money. The abstract nature of credit means consumers feel less emotionally connected to the money and are more prone to the risk of blowing their budget. Photo: Michel O’Sullivan

Australians have embraced low-cost debit cards for everyday transactions but are still racking up more than they can afford in bank fees and interest because of an unhealthy reliance on credit cards for big ticket purchases.

It seems the strategy of getting a debit card to limit reliance on credit is being undermined by the temptation to keep a credit card “in case of emergencies”, and that is then used for impulse purchases and overspending.

The latest figures from the Reserve Bank of Australia show the number of transactions paid for via debit card in November 2015 was 373.3 million, compared with 202.2 million purchases put on credit cards.

Our preference for debit over credit on smaller everyday transactions has grown over the past decade since the number of purchases paid for with debit cards overtook those made on credit cards in 2005.

The number of debit card accounts nationally sits at 41.2 million, up from 23.9 million when the RBA began recording the data in 2002.

“It’s promising that debit cards are now twice as popular as credit cards, as this indicates Australians are preferring to use money that is actually theirs and not borrowed,” Finder’s consumer advocate, Bessie Hassan, says.

However, a closer look at the statistics indicates the strategy is only proving successful for smaller purchases, she says.

The average credit card purchase sits at $127, while the average amount spent on debit is just $53.

“It is great to see the shift in culture towards more people using debit cards to pay with their own money, but credit card debt remains as the most common cause of financial hardship,” Anna Dooland, from Financial Counselling Australia, says.

It is perhaps not surprising given that banks are still marketing credit cards over the less profitable debit cards, she says.

Wealth Enhancers co-founder Sarah Riegelhuth​ encourages all her clients to cancel their credit cards.

“Unless you are paying the bill in full at the end of each month, having a credit card is not working for you,” she says.

“The best strategy is to have an emergency pool of funds set aside in a high-interest savings account to use for those so-called emergencies and not have the need to rely on a credit card.”

The abstract nature of credit, as opposed to hard-earned cash in the bank, means people feel less emotionally connected to the money and are more prone to falling into the trap of blowing their budget, Riegelhuth says.

“Even among those who manage credit well and pay the account in full each month, almost all subconsciously end up spending more.”

Australians borrowed $27.5 billion on credit cards in December, spending $3.2 billion on Christmas gifts alone.

The average cardholder is expected to take five months to pay their monthly bill, Finder’s analysis shows.

Clancy Yeates is on leave.

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