There’s no getting around the fact that we love credit cards so much that we’re paying interest on around $31.4 billion of credit card debt (ASIC Debt Clock). Yup, billion with a “B”. That’s a lot of money, and it equates to pure revenue for the financial institutions we bank with.
Credit Card Debt Australia: What we’re paying in interest
Well, based on the minimum, maximum and average interest rates on standard credit cards (including rewards credit cards) on CANSTAR’s database as at 11 October 2016…
- At average rates of 16.8% p.a., we’re paying $5.3 billion in interest charges per year, or around $14.4 million per day.
- At maximum rates of 23.50% p.a., we would be paying $7.4 billion in interest charges per year, or around $20.2 million per day.
On the other hand, if every single credit card holder with an ongoing debt had a Low Rate card that charged the minimum lowest rate of interest…
- At the minimum rate of 8.99% p.a., we’d be up for $2.8 billion in interest charges per year, or “just” $7.7 million per day. What a saving!
Why am I telling you this? Because I want you to grab your credit card statement (or jump online) and check what interest rate you’re paying.
If you always have an accruing balance and you’re paying more than 9% interest, you’re paying too much.
I want you to be annoyed by the fact that the average credit card interest rate now is around 17%, while the official cash rate is just 1.50%. That’s a big margin – and you might just be paying it.
Credit cards are great (if they’re used properly!)
Don’t get me wrong – credit cards are fantastic if you use them properly. You can put all your expenses through them – effectively using the bank’s money, not yours – and pay them off at the end of each month. If you’re a big spender, you can collect some fantastic credit card rewards points. And they’re handy for online shopping and as a travel money option.
If you don’t use them in the ideal way though (and many of us don’t – like I said, $5.4 billion accruing interest) they can cost you big time.
If you’re feeling a bit guilty now, or embarrassed, you shouldn’t. Even academics researching the psychology of credit card use admit to struggling with debt. What you can do is be proactive about your credit card debt and your credit card spending. Don’t give away more of your money in interest repayments than you have to.
Those who don’t pay their card balance off in full every month and carry an ongoing credit card debt would be wise to transfer that debt onto a Low Rate credit card, or even a 0% Balance Transfer deal. There are some terrific offers out there at 0% for 12 months or more. Then put together a repayment plan to pay it off as fast as you can.
Do you have a credit card debt? If so, compare Low Rate Credit Cards here.
Alternatively if you’re disciplined about your card use, compare Rewards Credit Cards instead. Either way, check the card you currently use and make sure that it suits your needs.