Low Rate Puts Debt Boom On The Cards
The Age
Friday December 2, 2005
THE proliferation of zero-balance transfer credit cards and intense competition among low-rate cards is encouraging people to roll over their monthly balances rather than pay off the debt, a report has found.
Independent market analyst Datamonitor says if the trend continues, Australia's credit card debt will balloon to $47.7 billion from $27.7 billion by the end of the decade. "The influx of low-rate cards offering zero per cent balance transfers and the increase in consumer choice has given consumers confidence to keep on borrowing, encouraging them to roll over debt rather than pay it off," said Alan Shields, Datamonitor's financial services analyst and author of the report. The report predicts that the total card balance will rise at a compound annual rate of 11.6 per cent, or 72 per cent over the next five years, with the average card balance jumping to $2794 from $2036. Credit card analyst Mike Ebstein, of MWE Consulting, said balances in the 12 months to September grew by 13.4 per cent, compared with 12.8 per cent in the previous corresponding period and 17.1 per cent in the year to September 2003. He said that while spending was starting to ease, Australians were simply not paying off debt as quickly as they once did. "The growth rate in purchases is only 8.6 per cent so we are spending more but not at the same rate as we are growing balances," he said."That's because cardholders are happy to leave the balance because they are paying a low rate or no rate." A spokeswoman for Virgin Money, which has targeted the low-cost segment of the market, said the Datamonitor forecast was not a surprise. "It is not a new trend," she said. "Increased competition and wider choice is certainly driving growth which is reflected in the UK experience."
© 2005 The Age
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