Growth in credit card debt 'hits 14-year low'

High interest rates appear to be deterring Australian consumers from flexing the plastic unnecessarily after new Reserve Bank figures show the growth in credit card debt has slowed to its lowest level since 1994, according to reports.

News.com.au said the statistics show the use of plastic cards to make payments increased by 4.1 per cent in the 12 months to May 2008. On average, consumers now spend $3,115 a year on their debit and credit cards, it added.

However, according to Commonwealth Securities' equities economist Savanth Sebastian, "decade-high" interest rates have increase the amount Australians are having to pay to service their debts.

The Reserve Bank's report said in the second quarter of the year, the average consumer spent 13.9 per cent of their disposable income on clearing interest charges - the highest amount since it started recording household finance figures in 1977.

Mr Sebastian added that with interest eating up this amount of income, there was little room for spending elsewhere.

"Consumers are looking at these particular interest rate hikes and realising the cost of borrowing is too expensive," he commented.

"Essentially, the household budget is stretched to the maximum level."

The report also revealed that Australia's tighter economic conditions have fuelled a record rise in bad debts, where consumers or businesses fail to meet their contractual obligations to make repayments. In the second quarter of the year, these impaired assets were up 68.5 per cent to account for $7.29 billion, the site said.

Mr Sebastian said: "The general economic environment has resulted in the significant increases in impaired assets, but importantly banks have accounted for a significant proportion of the rise in bad debts."

The Reserve Bank of Australia is responsible for all areas of monetary policy including setting the base interest rate. It last adjusted the rate in March, taking it up 0.25 per cent to 7.25 per cent.

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