Why do Australians waste $4.3 billion each year on interest repayments?
With interest rates currently sitting at a record low 1.75 per cent, it may be time for Australians to abandon credit card companies to find a better deal.
Credit card interest rates have remained at the same average level of 17 per cent since 2011, despite the steadily falling cash rate. And, despite the continued price gouging by credit card companies, around 77 per cent of Australians have remained loyal or are ‘too lazy’ to seek a better deal.
A creditcardfinder.com.au study has revealed that, due to the unwillingness of Aussies to switch card companies, a whopping $4.3 billion per year is wasted on interest repayments.
Of the people surveyed in the study, 62 per cent said they were ‘happy’ with the deal they get on their credit card, whilst 17 per cent said that switching was too much hassle and 12 per cent said they hadn’t shopped around because they think that all cards are the same.
And yet there are credit cards in the marketplace that offer interest rates as low as 7.99 per cent (Quay Credit Union Visa), and there are around 160 credit card companies that offer zero interest for between six months to one year on transferred balances. Many of these transfer deals also offer $0 annual fees.
There is even some debate that taking out a small personal loan instead of accessing funds on your credit card is a much better way to go. There are many products available that offer between 8.14 per cent and 13.90 per cent – much lower than the average interest on credit card repayments.
Of course, the most beneficial way to use a credit card is to be disciplined enough to ensure timely repayments so that interest is not a factor.
But for those who lack this discipline, or who have no alternative but to make minimum monthly payments, what stops them from wasting their money on interest repayments?
Allegiance to a specific bank is one factor, even though these same companies offer no tangible loyalty in return.
Fear of ruining a good credit rating has also been blamed, but it is possible for a customer to transfer a balance to a zero interest card at least twice before credit-rating alarm bells ring.
And considering that, on average, most Australians could knock off their credit card debt in two years on a zero-interest card, it would seem daft to not take the chance to get out of debt.
According to Smart Money Start’s Nicole Pedersen-McKinnon, there are a few tricks to credit transfers, including not using your new card for new spending, ditching the card immediately after the interest-free period has expired, as most zero-interest cards will attract a higher rate of interest at this point and cutting up old credit cards to remove any temptation to use them.
How do you feel about transferring credit balances to a zero-interest product? Would you take the chance? Or, if you have already done so, do you have any advice for our members?
Read more at The Age
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