A slowing economy and a fear of losing their job is motivating many Australians to slash their debt, economists say.
In recent months, personal credit growth has slowed to rates last seen in the 1991-92 recession.
Personal borrowing levels, which includes credit cards, margin loans and personal loans, fell by 0.2 per cent in January, the Reserve Bank of Australia said.
Other personal credit shrank for the eight consecutive month in January, the longest run of contraction in personal credit, other than for housing, since the 1991-92 recession.
Commsec economist Savanth Sebastian said clearing debt was attractive for Australians in the current economic climate.
“At the moment, consumers are probably looking at the global economy, realising it is weak and they have big concerns about employment,” Mr Sebastian said.
“They are really shunning away from debt in this environment.
“They are trying to ensure their households budgets are in order.”
The average debt on a credit card was $3,162 in December 2008, with plastic debt increasing at three per cent yearly, the slowest rate on record.
Repayments on credit cards rose by 22.2 per cent in December, the largest monthly increase in percentage terms since May 2006.
Mr Sebastian said the economic slowdown and reports of unemployment rising over the next two years would have a detrimental impact for consumers.
The federal government revised upwards to seven per cent its forecast for the jobless rate by June 2010, from January’s 4.8 per cent.
This equates to an extra 250,000 Australians applying for unemployment benefits.
“You would not expect consumers to be out there and borrowing rapidly unless you see a turnaround in the global economy, and we see some more positive news on the employment front,” Mr Sebastian said.
ANZ economist Alex Joiner said concerns about the economic outlook would continue to stifle credit demand for consumers and firms in 2009.
“However, consolidation of balance sheets for both business and households will be the order of the day as economic uncertainty rises,” Dr Joiner said.
“As such, we anticipate the downward pressure on credit will continue as economic growth weakens further throughout 2009.”