Australians that are holding credit card debt are likely paying too much. Since the Reserve Bank of Australia began lowering rates in 2011, the credit card companies have continually failed to pass on those rate cuts onto the credit cards they provide. If the banks had passed on the rate cuts to their credit cards over the last four years then the average customer would have saved $281 on their credit card debt. Credit cards can be a great convenience but when customers start accumulating debt then the burden can multiply out of control very fast. A higher interest rate on cards only puts those customers at higher risk of not being able to make payments.
High Rates on Credit Cards
According to research done by consumer watchdog, Choice, one in five Australians had to use a credit card to make it to their next pay check. Over 80 percent of credit cards in Australia are provided by the five big banks and the lack of competition means that banks have been able to get away with the high interest rates. The banks have benefited even more because the rates on their cards have not been lowered but the cost of the money they lend out on credit cards has gone down. Only 16 percent of credit card providers passed any of the lower RBA rates down to their customers’ credit cards within a month of the interest rates being lowered.
A comparison of credit card interest rates between 2011 and 2015 will even show that, on average, interest rates on credit cards have risen from 17.41 percent to 17.61 percent. The fees that credit card companies charge have risen too. Over the last four years the average credit card fee has gone from $94 to $115. Credit card companies’ profit margins have risen by a third in that time.
Credit card interest rates range from 5.3 percent to 20.99 percent so there are some cheaper cards out there. Before you take on credit cards make sure to shop around based on their interest rates, fees, and benefits. The RBA’s interest rate on cash is at an all-time low and now is the time to use low interest rates to your advantage to get rid of credit card debt. Do not let the credit card companies keep overcharging you. You can save a bundle by shopping around for the best deal on a credit card.