Aussie Card Holders Deemed ‘Transactors’ and ‘Revolvers’

Surely, the global financial recession, whose aftermath is sweeping parts of the world, will go down in history and economy text books as that one event in contemporary history, which forever altered human spending habits. Consumption in general, as well as budgeting, saving, and borrowing money in particular, are being redefined as we speak. On the one hand, this entails a mindset readjustment on the part of the general population – in Australia, for instance, people are now saving more money than ever during the past four decades. They are returning to a conservative approach to their finances, which has seen savings account dramatically increase their volumes in banks all over the country. As 2015 approaches, the seminal year when the Basel III regulations will come into force, banks, financial analysts, and investors as well, are also turning their focus toward more long-term savings products, such as term deposits.

In the meantime, though, for all the conservatism there is also a part of the Australian population that continues to use ‘plastic fantastic’. Less than a year ago, credit cards were regarded as the root source of all financing evils, with reports of insurmountable debt cluttering publishing outlet headline space. However, as the over-hyped panic frenzy of the recession waned, public opinion also came to approach the issue of credit card usage in more balanced terms. Recent reports indicate that the credit card market is still very much alive, even though its growth rate dropped to about 1.9 per cent in 2009 (and stayed there since), from 8 per cent in 2006. The main difference is that, currently, credit card holders are being divided into two camps: ‘transactors’ and ‘revolvers’.

Aside from differences in money-related attitudes, this division also points to the fact that there is such a thing as a ‘smart’ way to use one’s credit. Transactors, who, according to NAB card and personal loan GM David Berry, make up 55 per cent of all credit card users, may be the majority – but that certainly doesn’t make them popular with banks. They are the credit card holders who pay off their account balance in full, at the end of each month, before those hefty interest rates kick in. They make use of money which would otherwise be out of their reach in a timely manner, but are also foresighted enough to avoid accumulating unnecessary debt.

Meanwhile, revolvers derive the name of their label from the fact that their balance seems to be constantly revolving. This occurs because they only pay the minimum amount required by the credit provider at the end of each month, and let debt in the form of interest accumulate for months on end. Berry advises credit card holders with large revolving balance accounts to look into lower-rate credit cards. This is what we did, at http://www.bankwest.com.au/personal/credit-cards/credit-cards-overview, where we found out that switching providers is now easier than ever, thanks to the credit card reform that was implemented by the government starting from July 1, 2012. Of course, before moving to a different bank, it’s wise to pay off your debt in full. Otherwise, eligibility rates for banks which offer lower interest drop considerably.

Revolvers, on the other hand, are just the customers that keep the banking system alive, especially because they’re incurring debt from interest rates – debt that they are, eventually, forced to pay off. In a country in which many banks charge as much as 20 per cent interest on credit cards, it’s no wonder that debt derived interest can be hard to do away with, especially after it’s been allowed to accumulate. In the view of another banker, Iain Turnbull, head of cards with ME Bank, turning from a revolver into a transactor is no easy feat. Debt can be consolidated into a more affordable form of loan. However, revolvers who do manage to pay their way out of debt are best advised to lay off their credit cards until they can readjust their attitude vis-à-vis spending.