Over 500,000 Australians have moved away from credit cards and personal loan debt, in large part due to the Early Super Access Scheme that was introduced in early 2020, according to Equifax.
From April 20, 2020 to Jan. 1, 2021, the Early Super Access Scheme allowed emergency super withdrawals to accommodate several financial hardships during the pandemic — the same period when closed unsecured accounts for credit cards and personal loans peaked.
Kevin James, general manager of advisory and solutions at Equifax, said the scheme had significantly impacted the superannuation market.
“Our data shows closed unsecured accounts peaked in the first three months after the scheme came into effect, likely accelerating the trend we were already seeing in this space,” James said. “Australians used these emergency funds to get on top of their finances by paying off their personal debt, rather than increasing their discretionary spending as some originally feared.”
Since then, the total credit card and personal loan debt plunged by 13.2% — equivalent to $20.8 billion, with the average individual debt at $1,400 — marked by an overall decrease in usage.
For instance, the average credit card limit for newly opened accounts remained steady at $8,700. Owning multiple credit cards is rapidly becoming an unpopular choice, with most people closing additional cards to streamline their options.
“Though we have been observing the shift from credit cards to Buy Now, Pay Later services for some time, particularly amongst younger consumers, the pandemic has accelerated the decline of the rainy-day credit card,” James said. “It’s encouraging to see that Australians have taken positive steps to pay their debts, avoid credit traps and improve their financial health. We anticipate this trend will continue.”
Meanwhile, the average limit for personal loans has increased from $16,300 in January 2020 to $19,400 in July 2021. This is likely attributed to personal loans benefitting from the strength of the used-car market and home renovations.