Australians are using the current low interest rate to reduce debts and save. A St George-Melbourne Institute Household Financial Conditions Report surveyed 1200 Australian households. It showed debt levels fell from 22 per cent to 17 per cent during the September quarter.

With the RBA continuing the 2.5 per cent cash rate households were able to predict their repayments for the next few months.

Some used the low rate to reduce the principal on their mortgages.

Others paid less on their mortgage repayments and invested the extra cash in bank deposit accounts.

While a third group paid down debts they really didn’t want – hire purchase debts and credit cards etc.

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Senior economist with St George, Hans Kunnen Image: news.com.au

Senior economist with St George, Hans Kunnen Image: news.com.au

t Geroge senior economist Hans Kunnen spoke to news.com about the report: “The low interest rate environment has allowed people to pay a little less on their mortgages and get a buffer and pay down some of the expensive debt they prefer not to have.

“Borrowing for reasonable income-earning assets is not a bad thing but too much personal debt is clearly a bad thing. If you are racking up six credit cards then you need to talk to somebody.

“We are saving for Christmas rather than crediting for Christmas and people are going to be more cautious about adding to their debts.”

The report findings were backed up by a recent biannual Stability Review, put out by the Reserve Bank of Australia. It showed Australian mortgage holders were, on average, two years ahead of their repayments.

One of the principal drivers behind this (said the report) was the decision by some banks not to automatically change customer repayments when rates fell. “In many cases households have not actively sought to reduce their repayments.”

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