If you’re having trouble staying on top of your credit card debt, you’re not alone. As a nation, our plastic debt has surpassed $50 billion.
A new study from research house Canstar has revealed that the average Australian has more than one credit card and combined we pay an estimated $500 million each month in interest alone.
“Australians could be paying $11 billion too much interest over the last five years,” said Steve Mickenbecker, Canstar’s head of research, product and strategy.
To come up with the startling figure, Canstar applied the average rate of credit cards over the years to the outstanding interest incurring debt.
While today’s average card rate is close to 17 percent, some cardholders are paying up to 22.99 percent interest on outstanding balances, he said. “That’s outrageous if you’re leaving a balance on your card every month.”
He advises habitual spenders – the group of quite low spenders who are rolling their debt over from month to month – to be taking a card with a low interest rate of about 10 or 11 percent.
“These are low-frill cards so you don’t get the fancy rewards programs or all the benefits of premium cards. If you want a premium card with all of those added features, expect to pay for it. But if you’re rolling debt over do not take one of those cards,” he said.
RateCity shows that ongoing credit card rates start at 9.25 percent and there are 136 cards offering balance transfer deals from 0 percent for up to nine months. Unsecured personal loan rates start as little as 6.12 percent.
“Some people can manage credit and if you can, by all means keep your card. If you have trouble and you know you’re going to have trouble, maybe it’s time to look for an alternative – put your outstanding debt onto a personal loan and cut up the card, maybe,” he said.
Reserve Bank of Australia says many Australians are doing just that. Credit cards are becoming less important than they were five years ago and data shows a definite trend towards Australians using their own money.
Since the GFC, the number of credit cards transactions has fallen from half to one-third of all card purchase transactions (including debit and EFTPOS transactions). And since 2005, the growth in new credit card accounts opened has slowed from 6 percent year-on-year to just 2 percent as of April 2013.
Michelle Hutchison, spokeswoman for RateCity, said it isn’t a seasonal swing.
“We’re not surprised that EFTPOS and debit options have edged their way into the market in recent years given the uncertainty around global financial markets, because consumers are more cautious than ever about taking on debt,” she said.
“But it’s unlikely that we’ll see a world without credit cards, at least for the next decade. So use RateCity to compare credit cards to find a discount.”