News reports reveal that credit card debt is being repaid at record rates down under. The year to November saw the average Aussie credit card balance drop by 2.3%, says the Reserve Bank of Australia andthe decline takes the new average balance to $3,262.60. According to RBA data it was the first time that the total balance has dropped in consecutive months since records were first kept in 1985.

The average credit card balance accruing interest dropped at a faster rate of 4.2% to amount to $2,321.90. Altogether Aussie outstanding credit card balances dropped by $1billion to reach a total of $35.2 billion. Credit card accounts increased to 15.2 million, a marginal increase of only 200,000,a figure which was a third of the rate it was before the global financial crisis.

Credit-Card-Balance

Also, credit card accounts that do not have an interest-free period applicable to them dropped to an all-time low of 320,000 in November and totalled a 5.9% reduction for the year. Debit cards made up some of the deficit, increasing by 6.6% to comprise 36 million in total.

A CommSec economist said the move away from credit cards and towards debit cards was being driven by younger people. He said generation Y does not want to get into debt and is not interested in living on credit. He also said that the general trend was more conservative these days. The number of transactions where debit cards were used to withdraw cash from supermarkets increased by 45% compared to a year ago.

Meanwhile, affordable credit card rates are becoming increasingly more accessible online, as we learned at http://www.bankwest.com.au/personal/credit-cards/credit-cards-overview. At the same time, if banks decide to drop their interest rates to align them more closely to the rate set by the Reserve Bank businesses and home owners would benefit significantly. And, while the banks may have been able to use the “higher international funding costs” argument until a little while ago, it is clear that borrowing costs are coming down for banks that borrow from international markets.

By way of example, the decline in borrowing costs enabled Commonwealth Bank of Australia to borrow $2 billion this month at a significantly lower amount than last year. In January 2012 Commonwealth Bank borrowed $3.5 billion over a period of five years, which was 1.75% higher than the swap rate. In a similarly-structured deal this year the bank qualified for a swap rate of 0.5% and a subsequent saving of 1.25% so there is no denying that international circumstances have changed and made borrowing a cheaper exercise for the country’s financial institutions.

ING Direct, one of the few to pass the last two rate cuts on in their entirety, was quoted as saying that it was cheaper funding that had allowed it to drop interest rates. ING Direct’s Chief Financial Officer said that it was the decline in the cost of wholesale money that been the catalyst and the cost for wholesale money was continuing to drop.

An economist from Bank of America said there was a precarious line between keeping borrowers and depositors happy and a decline in job adverts has some believing that the bevvy of rate cuts has failed to stimulate spending.

NAB has also confirmed that its commitment to have the lowest SVR would not be continued into 2013. The bank confirmed it had maintained this standard last year and that it had also had the lowest standard variable mortgage rate out of the big four for more than 3.5 years.

Despite a 125 basis point drop being extended by the Reserve Bank the banks have not made 39 basis points worth of cuts available to borrowers. Of the 1.75% reduction in interest rates only 1.36% has been made available to bank customers thus far.