‘Racking up debt’: Credit card rates still sky-high
Credit card customers are getting dudded by high interest rates on cards that have barely budged during the pandemic.
A new analysis by financial services firm Canstar shows in 2020 there were just 15 cuts to personal credit card rates and the average card rate fell by a tiny 0.03 per cent.
This is despite the Reserve Bank of Australia's official cash rate falling from 0.75 per cent to a record low of 0.1 per cent during the year.
The average credit card interest rate is now 16.91 per cent, and consumers appear to be voting with their feet.
RBA data released Tuesday shows the amount of credit card debt accruing interest is near its lowest level since 2004 but it rose slightly in November to $19.96 billion, partly driven by the Black Friday sales.
The debt is down from $31.6 billion three years ago, and Canstar spokeswoman Effie Zahos said consumers paid $7.44 billion off it during 2020.
"We did a nice job of knocking back that debt, but it's a little misleading to think we are ahead of all our debts," she said.
"There are more ways to rack up debt."
Buy now, pay later schemes had boomed, people withdrew money from super in 2020 to pay off credit cards, and others used mortgage repayment holidays to ease COVID-19 financial stresses, Ms Zahos said.
"Those living pay-to-pay are trying to juggle different debts," she said.
Many credit cards have interest rates above 20 per cent, and Ms Zahos said she believed lenders could be more competitive.
"The lenders' argument is it's unsecured credit but the fact is on the reward cards consumers pay an annual fee," she said. No rate cuts were made to reward cards in 2020 despite the frequent flyer points that many accrue being largely unable to be redeemed.
An Australian Banking Association spokesman said customers who were unhappy with the fees and charges on their card could look at offers by other financial institutions.
"Customers have a choice when it comes to credit cards, with some customers seeking reward programs and other features, while others prefer to access the lowest interest rates possible," he said.
"The various credit cards offered by Australian banks and non-bank lenders are suited to the varying requirements of different customers.
"Therefore, Australians should shop around to find the card that is right for them."
In recent years many Australians have shifted to buy now pay later schemes. In the 2017-18 financial year transactions were worth $3.1 billion, and this nearly doubled to $5.6 billion in the 2018-19 financial year.
Originally published as 'Racking up debt': Credit card rates still sky-high