The terms “credit card” and “debt” often go hand-in-hand, but thinking about them separately could help you see the bigger financial picture. While the convenience of credit and incentives such as reward programs make it easy to rack up a debt on your credit card, it can affect other areas of your life just as much.
In the past, a lot of that wellbeing has hinged on managing credit card debts and mortgages, as well as the country’s economic situation. But it seems changes in our habits are shifting the dynamics.
In fact, Australians are now more confident in their household finances today than at any other time since Q2 2010, according to the latest ING Direct Financial Wellbeing Index.
The quarterly Index rates household comfort levels across the following six key aspects of personal financial wellbeing:
One of the key changes in the third report for 2012 is the level of credit card debt.
While previously we have had to deal with average debts around $2000 or $3000 per credit card, ING Direct has reported a median outstanding card debt of $1,470 per household – the lowest since tracking began in Q1 2010.
Our focus on reducing credit card debt has paid off in other ways as well, with the Financial Wellbeing Index recording a median savings amount of $9,735.
The Index notes that this is the first time since tracking began where “confidence in personal savings is not the lowest score across the six financial dimensions.”
ING Direct CEO Vaughn Richtor said the shift towards cutting costs has led to an historically high financial wellbeing score.
“Households are saving more and reducing debt which is leading to greater confidence,” he said.
“It is a good sign that confidence is on the way up with financial wellbeing reaching a 2-year high.”
With people racing to “spring clean” their finances in time for the summer holidays and Christmas, the timing of this news could not be any better.
It should mean Aussies can celebrate the silly season however they want, without worrying too much about financial struggles once the start of 2013 rolls around.
The report from ING Direct is not the only one to suggest a shift from spending to saving.
Early in 2012 Bankwest made similar findings and predictions in its 2012 Financial Fitness Index.
The annual survey focuses on savings position, insurance coverage, housing costs and net assets (assets less debts position) to assess whether people are financially fit, unfit or have “borderline fitness”.
In 2012, there was a significant decrease in the number of Financially Unfit people, with 24% for 2012 compared to 31% in 2011.
But more interesting is the fact that the bank reported 52% of Australians had changed their spending patterns, with 46% becoming more conservative with their spending in 2012.
While Bankwest’s survey was released at the end of February 2012, it shows there was already a change in our attitudes and habits that has stayed strong throughout the year.
Just as credit cards can have an affect on our finances, the kinds of money management processes we favour can have an impact on our credit cards.
If you have a rewards card, for example, then cutting down on spending and paying off the debts could mean you are not earning as many points but still paying for higher interest rates and annual fees.
On the other hand, if you still use the card a lot, it could just mean it becomes a much more affordable option.
But whatever happens, if your situation changes in some way it may be time to review your credit card’s features to see whether it will still work for you.
Otherwise you could use a card that does not complement your habits and end up “throwing money down the drain”, as Kochie would say.
So what kind of card should you get if you have shifted from spending to paying down debt?
The simplest answer is one that is affordable and convenient for you. Usually low rate credit cards tick these boxes, but it all depends on why you use credit and how often you pay with plastic.
There is a wide range of credit card categories, issuers and options around, so you definitely have a lot of cards to compare.
But even better is the fact that many of them offer introductory rates for balance transfers, which means you can switch to a better card and save money on interest while you pay down debts.
That should help you build up your financial fitness in time for summer expenses and make it easier to maintain.
Founder of Creditcard.com.au. Roland has extensive knowledge about credit cards in Australia. Known as a credit card expert, he has been featured on tv and in various publications. Some popular offers on our site right now include the ANZ Low Rate. Ever popular with no annual fee first year, low purchase rate and 0% balance transfer. Have a look also at the 0% balance transfer HSBC offer with no balance transfer fee, plus an annual fee waiver each year you meet a spend criteria.