Young Australians are teaching their baby boomer parents a lesson in saving by using debit cards to tap and go – interest free.
According to a study by the Reserve Bank of Australia, the credit or debit card has overtaken cash as the most frequently used method of payment.
And while we still have an eye-watering $33 billion of credit card debt, it is at least down from the $37 billion in 2012.
The average credit card balance accruing interest is now below $2000 – a decrease from $2500 five years ago.
Which is good news considering payments using credit or debit cards have doubled in the last 10 years.
Cards accounted for 52 per cent of all consumer payments followed by cash at just 37 per cent. Yet a decade ago, almost 70 per cent of all transactions were paid in cash and only 26 per cent used cards.
More people are using tap-and-go at food outlets, public transport and taxis. Increasingly, they are using their plastic cards for lower-value transactions, and the median value of card payments has dropped from $40 in 2007 to $28 in 2016.
Mobile apps for sharing cabs have further contributed to the rise of card payments, the RBA said.
However, cash payments remains the most common method of payment for older people aged 65 years and over.
Cash payments are also more popular among the lower-income households rather than high salary earners. This is because they want to avoid credit card surcharges.
The study also found that there was little interest in tapping mobile phone to make payments rather than using a plastic card. Mobile payments only accounted for 1 per cent of all sale transactions.
But as better technology becomes available, the RBA said it “would not be surprising” if the number of mobile payments increased in the future.
But before the celebrations, we’ve still got one of the biggest personal credit card debts per capita.
Tips for erasing that credit card debt
- Unless you have other debt at a higher interest rate, make paying off your credit card a priority.
- Use any savings you have – they are only earning a fraction of the interest you are paying.
- Use internet banking to set up a fixed recurring payment to your credit card. Time it for just after payday.
- See if you can switch the balance to a new card offering zero interest for balance transfers – then cancel the old card so you’re not tempted to run up extra debt.
- If you have debt on more than one credit card, focus on paying down the highest rate card first (and just the minimum on the other) to maximize debt reduction bang for your buck.
- If the interest rates are the same, focus on the smallest debt first to get it out of the way.
- Cancel unnecessary cards as you pay them off, so you don’t run up more debt.