Low-rate credit cards have always been a favourite choice for those spenders who don’t pay their outstanding balance off each month. But a recent report has discovered that interest rates for low-rate credit cards are on the rise and the usual “low rates” may be a thing of the past.
Low rate credit cards aren’t so low
According to the report, since the global economic crisis began in 2008, interest rates for low-rate unsecured credit cards have risen above 10 percent, with some cards as high as 14 percent, despite a decline in the Reserve Bank of Australia’s (RBA) cash rate.
In September 2008, the average rate for the lowest credit cards was just above 9.5 percent. However, in June 2010 it sat just above 10.5 percent regardless of the cash rate being 2.75 percentage points below the September 2008 level.
The reason for the increasing gap between rates for low-rate credit cards and the cash rate is that unsecured debt is more expensive for financial institutions to fund, as banks perceive unsecured credit card debt as risky, with no guarantee that the debt will be repaid in a timely manner.
Pay off your debt sooner
While interest rates are on the rise, there is now more choice when it comes to the number of low-rate credit cards on offer. According to the report, the number of credit cards with an interest rate below 14 percent in June 2008 was around 65 compared to June 2010 when there were 75.
But the good news is that despite higher interest rates you could save yourself from paying more than you have to. Depending on your spending habits, there are some tips on how you can stop your credit card from costing you more than it should:
- If you pay off your balance each month you won’t be too worried about the interest rate, so look for a credit card with more interest-free days so that you have more time to pay without being charged. Also, look for a credit card with no annual fee. For instance Virgin Money and Bank SA both have no annual fee credit cards currently on RateCity.
- Those who struggle to pay off their credit cards each month should look for the lowest-rate credit card available. Compare credit cards online so you can pay minimal interest. For instance, one of the best low-rate credit cards on RateCity is currently at 10.49 percent with MECU, and Community First Credit Union at 10.99 percent (as at September 13, 2010).
- Consider transferring your outstanding balance to a balance transfer credit card that offers a low or zero interest rate for a certain period of time. That way you can focus on paying down your debt sooner without paying a high interest rate. For instance one of the best balance transfer credit cards on RateCity is with Citibank at 0 percent for six months.