Why do Australians waste $4.3 billion each year on interest repayments?

Why do Australians waste $4.3 billion each year on interest repayments?

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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    COMMENTS

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    MICK
    21st Jun 2016
    10:35am
    People who pay interest on their credit cards are nuts. And you wonder why some folk never have two razoos to rub together in their lives. If banks relied on getting interest from my card they'd be broke, but maybe that would be a good thing given the reputation of the banking system.
    Sceptic
    21st Jun 2016
    12:50pm
    Goodness me, I am agreeing with MICK. I use my credit cards to pay for almost everything, so do not need to draw or have cash, But the month's spend is paid every month by direct debit. No interest paid, and I have the advantage of only having to transfer funds to the bank account to cover the direct debit once a month.
    JoMojo
    21st Jun 2016
    10:52am
    Yesterday a relative rang Myki to get their free bus travel, on weekends, card. Costs $3. They would not send an invoice to pay at post office, nor accept EFTPOS nor debit card payment ........ told her must pay by CREDIT CARD. Her newsagent does not do Myki would have to now get taxi to the train station (no bus goes direct that way)from where she is. Taxi cost $9 each way !
    MD
    21st Jun 2016
    10:55am
    We have had the same C/C now for more than a decade. The card is linked to an airlines' 'Rewards' which over the course of time has been steadily eroded to a point that any (questionable) gain is now insignificant. The Principal has twice changed the banking administrator/lending institution, probably for capital funding purposes. By paying the 'Amount Due' in full by the nominated date we have not incurred fees other than the annual card costs. Although we have compared others cards on offer, with a view to no or low annual charges, our situation would have been restricted as in each instance the 'card limit' would have been significantly reduced. The devil you know, perhaps.
    When the media tells us that card debt amounts to > $4K for each Australian, then serious thought needs to be given by those carrying this debt why it is so because obviously they are not managing realistically, much less living within their means.
    Rae
    21st Jun 2016
    2:48pm
    It is best to hold on to your card if possible. I have heard of retirees being refused credit cards or only offered much lower card limit.

    I use my frequent flier points and have flown interstate and overseas numerous times using points although airport fees and taxes still need to be paid.

    I do get less points now though for the same spend. I'd change cards but for the problems associated with being "semi retired".
    Old Geezer
    21st Jun 2016
    11:15am
    Credit cards are like fire. A good servant but awful master.

    I use my credit card for just about everything now. Get an extra months interest a year on my savings and lots of reward points. I pay no interest or fees on my credit card. It is a nice bonus having a free flight somewhere every year or so.

    No I wouldn't take out a personal loan. Too many fees and I would have to pay interest.
    PlanB
    21st Jun 2016
    11:44am
    I use my CC for most things and I make sure I pay it a day b4 it is due never been late since I have had it in decades same as all my bills-- they are always paid on time and every few years I also get a credit check from Dun & Bradstreet to make sure nothing has gone wrong -- so far in MANY decades they have not had a thing on me
    downunder
    21st Jun 2016
    12:01pm
    You got to be nuts or in dire straits if you pay interest on your cc. I pay almost everything by cc for the last 50+ years and with one exception I never paid a penny. Why? Pay the sum owing on due date. The contrary is true, paying with cc gives me - depending which card and provider between 3 and 50 days credit. Just be disciplined and learn to budget
    KSS
    21st Jun 2016
    12:52pm
    If someone has a problem with budgeting, they probably shouldn't have a credit card.

    Credit card interest is one of the easiest fees to avoid simply by paying off the full amount owing every month. If you can't afford to do that you can't afford the credit card.
    Sen.Cit.90
    21st Jun 2016
    2:13pm
    I use a 'Direct Debit Card' and use it for most of my purchases even to get cash-out at the supermarket for incidentals.It costs nothing and I cannot get into debt. I also find PayPal useful on occasions when buying off the Internet. I always refuse to give my card details on the web or over the phone.I had my card comprised once; the Bank picked up the unusual purchases and my stolen money was refunded.
    Old Geezer
    21st Jun 2016
    2:51pm
    Credit card costs nothing either but gives me back much more than nothing. Debit card gives me back what it cost me nothing.
    Anonymous
    21st Jun 2016
    9:14pm
    I agree Sen.Cit.84, my Debit Visa account also achieves a monthly interest on balances and a reduction on fees. Another advantage is that Credit Card transaction fees for air fares, cruise costs etc don't apply to a debit card.
    Sundays
    21st Jun 2016
    4:42pm
    I think we are all showing our age with a fear of debt while many young people think nothing of running up debt on consumables and paying later. However, I was advised by a bank employee not to get rid of my credit card when I retired as it would be very hard to get another one. Hence, why I haven't looked for a better deal, but as it's rarely used and no interest paid, I already have the best deal.

    21st Jun 2016
    9:10pm
    I used to work in finance and part of the history of credit card interest rates is fascinating. In an effort to get their card "out there", banks sent the cards out in the mail unsolicited. Cards were used by people who had no job, no assets and no prospects as well as cards being stolen from mail boxes with the result that a lot of debts were unrecoverable. Add to that the legitimate usage by people who paid the debt by the required date and took no cash advances with this group being much higher than budgeted. The high rate was initially to cover the losses and has continued. Only if one major bank drops their rate will we see an overall reduction to a sensible rate. As an aside, I recall a very senior manager telling a group of managers how to negotiate interest rates. His advice was to start very high and come down by quarterly increments until the customers' eyes stop rolling.
    PlanB
    22nd Jun 2016
    6:40am
    Old Man I seem to remember that someone's DOG got a credit card at one time they were handing them out so will nilly


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