Ratio of credit card debt to discretionary income

IBISWorld forecasts the ratio of credit card debt to discretionary income to drop by 0.17 percentage points in 2024-25, to 5.50%. Real household discretionary income is projected to rise over the year, with cost-of-living pressures easing. This is both reducing the level of spending placed on credit cards and improving the ability of households to pay current credit card debt off. Furthermore, the number of credit card accounts are projected to decline in the current year, constraining credit card debt levels, and therefore, the ratio of credit card debt to discretionary income.

Credit card balances have declined over the past five years. Consumers have navigated a complex landscape of rising interest rates and cost-of-living challenges, reducing their credit card usage as they weigh the high interest rates often associated with such debt. In addition, strong competition from buy now pay later services like Afterpay and Zip Pay have also curbed significant growth in credit card debt. Government support initiatives during the pandemic also contributed to a decline in credit card balances, with support payments, like JobKeeper and JobSeeker, and the early release of Superannuation funds allowing consumers to pay down credit card debt.

The number of credit and charge card accounts in Australia has declined over the past five years. Instead, households have opted to use savings to fund expenditure. The emphasis on credit card rewards programs has lessened as consumers have instead prioritised affordability and debt management amid rising inflation and interest rates. However, cost-of-living pressures over the two years through 2023-24 saw the ratio of credit card debt to discretionary income reverse its downward trend. Overall, IBISWorld forecasts the ratio of credit card debt to discretionary income to decline at an average annual rate of 0.35 percentage points over the five years through 2024-25.