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Australians in the dark on credit card interest rates

25 February 2019

Australians in the dark on credit card interest rates

New research has revealed that only one in five Australians know the exact interest rate they are paying on their credit card, despite 51 per cent of people nominating a low interest rate as an important consideration when choosing a card provider.

An independent survey of around 2,000 Australians, conducted by Enhance Research over a  two-week period in January, found that while many were oblivious to what their interest rate was, around 92 per cent of those with a credit card had used it to make purchases over the holiday season. On average, those with a credit card reported that they had made around 45 per cent of their purchases on credit cards over the Christmas-New Year period. One in four expected it would take three months or more to repay the balance, while 6 per cent said they would never pay it off entirely, instead rolling the balance over month to month.

Almost one in three credit card holders (29 per cent) said they paid for everything on credit cards, all year round. Food and groceries, clothing/ shoes/ accessories and travel were the other most popular purchases on credit cards.

The research was commissioned by Australia’s largest credit union, CUA (now Great Southern Bank), to better understand how consumers are feeling about debt as they look ahead to 2019.

Great Southern Bank Head of Product Barbara O’Conor-Nash said it was worrying that consumers were relying on credit to make purchases, without realising how much the purchase would ultimately cost at the end of the day.

“Seven out of 10 respondents indicated they had at least one credit card, while we found the average credit card balance was just over $4,000, reflecting that credit cards are a way of life for many Australians,” she said.

“But if people don’t understand the features of their credit card and how much interest they are paying, they can end up feeling financially stressed.”

Only 21 per cent of Australians said they were completely in-control of their finances and those with higher credit card debt were much less likely to feel in control.

“For a lot of people, the beginning of the year is a good time to reassess your spending and your personal debts and set yourself some budgets and financial goals for the year ahead,” Ms O’Conor-Nash said.

“Only one in three people feel like they are getting ahead financially so for the rest of us, there may be ways to restructure your finances to improve your financial wellbeing and ensure your level of debt is reducing over time.

“Rolling your outstanding credit card balances over to a new card with 0% interest on balance transfers is a popular option, but that won’t work for everyone. Depending on how much you owe across your various credit cards, buy-now-pay-later accounts and other store-based credit, another option is to consolidate your debts into a fixed rate personal loan. That will give you the discipline of regular payments, but it is also worthwhile looking for a personal loan that allows you to make extra repayments when you can.”

Once you have a plan to repay the debt, Ms O’Conor-Nash recommended that people either cut up their card or put it in a bowl of water in the freezer.

“You would be surprised how little tricks like this will save you money, by stopping you from making impulse purchases and drawing down on the card.”

When it came to choosing a new credit card, consumers said the most important features they were looking for were:

  • Low or no annual fee
  • A low interest rate
  • The number of interest free days

Ms O’Conor-Nash also suggested consumers check if they are paying extra to access rewards points they may never use, any conditions around balance transfer offers or whether your credit card provider gives you access to digital wallets like Apple Pay or Google Pay.

She recommended that consumers looking to improve their financial situation and get debts under control in 2019 should seek advice on what would work best for their personal situation.

“Start by establishing a clear picture of how much you owe and what interest rate you are paying across your various credit cards, personal loans or other debts. Then talk to an expert about the best options for you, as it can be confusing to know where to go for help.”

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