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80% of credit card users with debt don’t know their interest rate

80% of credit card users with debt don’t know their interest rate

With the silly season now upon us, shoppers using credit cards are being warned to be careful not to get stung with big interest bills.

New research shows eight out of 10 credit card users with debt don’t even know what interest rate they are paying.

The RateCity.com.au survey found 44 per cent of people with a credit card are paying interest – worth over $250 million in the month of September. Worryingly, 80 per cent of these people did not know the interest rate on their card.

The average credit card rate is currently 17.23 per cent, however, rates range from 7.49 per cent to 23.99 per cent, which can have a significant impact on the interest charged.

Of the people paying interest, one quarter had debts of less than $1,000. However, one in 10 said they had a credit card debt of $20,000 or higher.

The cost of credit card interest

RateCity.com.au analysis found that accounts with debts of $20,000 on the average rate paid a monthly interest bill of $283. However, on the lowest rate card, this would be $123 per month – reducing the interest paid by more than half. 

Monthly interest $20kAnnual interest - $20k
Average rate (17.23%)

$283

$3,446

Low-rate card (7.49%)

$123

$1,498

Difference

$160

$1,948

Source: RateCity.com.au, RBA personal lending rates for September 2021, released 5 November 2021, data is in original terms.

Sally Tindall, research director at RateCity.com.au, said Australians had been paying down debt and cutting up credit cards in droves during COVID, however, there are still people stuck on a debt treadmill.

“Nearly half of credit card users are forking out interest worth over $250 million in the month of September,” she said.

“It’s a worry that eight out of 10 people paying credit card debt have no idea what their interest rate is.

“If your budget is tight, put your credit card in the bottom drawer and only pull it out in an emergency, especially as we head into the spending season.

“Credit card debt is one of the worst kinds of debt, with interest rates climbing well over 20 per cent.

“While it’s tempting to spend up big on your loved ones or a ‘bargain’ in the upcoming sales, paying the bills and putting food on the table, without having to resort to credit, should be the priority.

“If you already have a mountain of debt that’s strangling your budget, consider moving to a low-rate card or transferring the balance to a personal loan that will force you to pay down the debt in full,” she said.

5 tips to stay on top of credit card debt

  • Check your rate: There are 17 credit cards with interest rates under 10%. If you aren’t clearing your debt each month, you could save a lot of money switching to a low-rate card. Three of the big four banks also offer 0% credit cards, although monthly fees may apply.
  • Pay more than the monthly minimum: For most cards that’s around 2%. At that rate it could take decades to repay your balance.
  • Check your interest free days: Most cards give you some breathing room to pay off a purchase – typically up to 55 days before interest kicks in. But you can lose your interest free days if you haven’t repaid last month’s bill.
  • Weigh up the rewards: While a free flight, or even a free bottle of wine, might sound nice now, know that credit cards offering perks often come with higher-than-average interest rates and fees.
  • Set up a budget: If you use your credit card to plug the shortfall until pay day, then set up a budget. Write everything down that you spend in a month – you might be shocked to discover just how much you spend, as well as ways to cut back. 

Credit cards with interest rates under 10% and no or low annual fees

ProviderCard nameInterest rateAnnual fee
G&C Mutual BankLow Rate Visa Credit Card7.49%

$50

Auswide BankLow Rate Visa Card8.05%

$50

American ExpressLow Rate Credit Card8.99%

$0

Community First Credit UnionLow Rate Credit Card8.99%

$40

Easy Street Financial ServicesEasy Low Rate Visa Credit Card8.99%

$40

Defence BankFoundation Visa Card8.99%

$45

MOVE BankLow Rate Credit Card8.99%

$59

Bank AustraliaLow Rate Visa Credit Card9.39%

$59

Australian UnityLow Rate Visa Credit Card9.90%

$59

CBAEssentials9.90%

$60

Greater BankVisa Credit Card9.95%

$49

Bank of usVisa Credit Card9.99%

$39

First Option BankLow Rate Visa Credit Card9.99%

$48

BankwestBreeze Classic Mastercard9.99%

$49

Source: RateCity.com.au

Big four bank 0% interest credit cards

Westpac FlexCommBank NeoNAB StraightUp
Interest charges0%0%0%
Late payment fees$0$0$0
Foreign exchange fees0%0%0%
Max credit limits$1,000Between $1,000 - $3,000Between $1,000 - $3,000
Monthly fees$10 / mth

Waived if customers pay the amount owing for the previous month on time.

$1K limit = $12 / mth

$2K limit = $18 / mth

$3K limit = $22 / mth

Waived if you don’t use the card and have a $0 balance.

$1K limit = $10 / mth

$2K limit = $15 / mth

$3K limit = $20 / mth

Waived if you don’t use the card and have a $0 balance.

Source: RateCity.com.au

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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