For many the fear of rising farm debt and even the slightest lift in interest rates has an apprehension ranking on a scale similar to drought, bushfires, the collapse of wool’s reserve price scheme, or a live cattle export ban.
Debt is generally an ever-present and sizeable fact of farming life, and sleeplessness.
Our national rural debt doubled to more than $20 billion in 1990s, and since the start of the new century has blown out by a further 230 per cent.
There are now about 67 billion reasons to be wary about Australia’s escalating agriculture sector borrowing levels.
However, despite record low official Reserve Bank of Australia (RBA) interest rates for the past few years, bank lending growth to pay for farm sector investments and surging rural production activity has actually been relatively modest, growing at only 1pc in 2014, 4pc in 2015 and 3pc last year.
Today’s $67b debt also compares fairly conservatively with Canadian farmers’ $91b – up 7.5pc for the year in 2016 (and that did not include farm household borrowings such as car loans).
Our rural debt figures look even more prudent when compared with Australia’s national credit card bill, and the sort of money we routinely pay every year on credit card interest charges.
Latest RBA figures show Australians owe about $51.4b on their credit cards.
That’s roughly only about $16b less than the entire agriculture sector loan book.
On average a reasonable portion of those credit card accounts are repaid every month, but about $31.4b is still accumulating interest at borrowing rates generally well above farm or home loan lending rates.
According to financial industry analyst, Canstar, the average non-rewards credit card interest rate is about 14pc.
That means our ongoing credit card debts attract an average interest bill of around $4.5b a year, or just over $12 million each day.
Shoppers are quite likely to be paying an average 20pc interest for their discretionary spending because they use a rewards card – that’s about 15pc more than the going mortgage rate
Shoppers who like the idea of owning a personal credit card which earns them shopping rewards or airline flight discounts, are paying even more – up to almost 23pc interest, or an average 19.6pc.
Interestingly, despite the fact the RBA’s official cash rate has been at a historic low of 1.5pc since August 2016, average credit card interest rates for non-rewards and rewards cards have barely budged in years.
In fact, a decade ago in December 2007 when the official cash rate was up at 6.75pc, the average non-rewards credit card interest rate was 14.5pc – just 0.5pc more than today’s average.
While Australians tend to pay careful of attention to housing mortgage cost trends and farmers are constantly pushing their bank managers for better lending deals, Canstar financial services executive, Steve Mickenbecker, doubted if many average credit card holders had much idea of interest rates on their regular plastic spending habit.
“Home buyers can probably find at least 60 different lenders offering mortgage finance at 4.6pc these days,” he said.
“However, those same borrowers are quite likely to be paying an average 20pc interest for their discretionary spending because they use a rewards card – that’s about 15pc more than the going mortgage rate,” he said.
“Even compared against the rate somebody with a non-rewards card is charged, they could well be paying an average 5.5pc more in interest on their card.
“A common home loan rate doesn’t even cost you 5.5pc interest.”
A better deal
Mr Mickenbecker said anybody struggling to repay credit card bills in full each month should be switching to a no-rewards card where interest rates were down to 7.99pc, plus annual fees.
No-frills, zero-fee card options from credit unions offered rates below 9pc.
If “sticky” card debt was continuing roll over month after month, he said card owners could consider a personal loan (at a much cheaper interest rate), repaying their credit card debt in one hit, then committing themselves to disciplined monthly loan repayments on the personal loan.
“Sometimes you can’t help running up a big credit card bill because of a significant cost which has to be paid, but in general we pay too much on credit card expenses,” he said.
“We now use plastic to pay for stuff almost every day, including tap and go options – an annual spend of $36,000 a year would not be uncommon.
“If you’ve got, say $5000 or $6000 of ongoing debt, attached to that card you can easily be paying $10,000 in interest every year.
“If you owe a debt, pull out a credit card statement, have a look and compare it with the competition in the market.”
Slightly more alert to costs
Last year a Canstar survey of 3000 adults confirmed about 27pc aged between 30 and 49 were worried about their credit card debt, as were 20pc of those aged between 50 and 59.
Mr Mickenbecker said generally, however, consumers tended to be lethargic about understanding credit card rates or chasing a better deal.
While there were signs of some improved consumer awareness about interest rate options, and credit card debt was trending down marginally, “a stack of people are still paying a lot of money”.
“We’re talking $32b in credit costing card owners interest repayments at very significant rates,” he said.
Meanwhile, for shoppers hoping rewards points were compensating them for some of the big interest rate costs they paid, Canstar has found little evidence to suggest they do.
“Banks make a lot of money from cards attached to loyalty rewards programs, but they’re almost never worth it,” Mr Mickenbecker said.
“In fact the value of the shopping rewards or frequent flyer points are actually less than they used to be – the credit providers found their loyalty programs were getting too expensive.”