How To Cancel Credit Card Debt

Sneaky interest rate increases add to credit card debt woes

 

 

Some credit card issuers have increased rates by up to 1 percentage point. Source: Supplied

 

 

CONCERTED efforts to pay off credit card debts are being thwarted because banks and other issuers are charging 1.5 per cent more interest than last time the official RBA rate was this low, costing consumers an extra $500 million.

Official data shows that since February - when interest-free periods on last year's Christmas shopping expired - diligent householders have managed to pay down $1.3 billion of the total $37 billion which is accruing interest. This is despite facing standard rates nearing 20 per cent.

Shoppers would have been able to whittle their balances down much further were it not for sneaky rate increases.

In October 2009, when the Reserve Bank cash rate was last at 3 per cent, the average standard credit card charged 18.1 per cent. It is now 19.6 per cent, data published by the central bank shows.

For low-rate cards - those that aren't linked to Frequent Flyers or other rewards programs - the 2009 average rate was 11.8 per cent. It is now 13.3 per cent.

For both low-rate and standard cards, the average increase has been 1.5 percentage points, which adds more than $500 million a year to repayments on that nearly $36 billion of credit card-debt currently attracting interest.

Analysis for News Ltd by comparison website RateCity reveals 130 cards out of 200 monitored have not lowered their rates since November 2011 when the RBA began a series of cuts that has reduced the cash rate by 1.75 percentage points.

Some issuers have actually increased rates by up to 1 percentage point, RateCity spokeswoman Michelle Hutchison said.

Nonetheless there are still some good-value cards on the market.

RateCity's pick is the Community First Credit Union Visa card, which charges only 9.5 per cent and has 55 days interest-free. With an identical version of the card, called McGrath Pink, half the $40 annual fee goes to supporting women with breast cancer.

Community First is runner-up in Money Magazine's latest credit cards awards. The winner - issued by Credit Union SA - is not available to people outside that state.

Only one major bank, CBA, makes the financial performance of its credit cards public. In its most recent financial results CBA said it had made an extra $68 million from credit cards and personal loans in the six months to June 30 due to "volume growth and margin improvement''.

A CBA spokesman said: "Credit card interest rates are not linked to the official cash rate and, as an unsecured form of credit, are priced based on risk.''

However, those financial results also revealed the level of credit-card arrears among CBA customers was actually declining markedly.

The spokesman said that more than 60 per cent of its customers did not pay any interest on their cards because they cleared the balance each month.

He added that the bank cut rates on credit cards by the full 25 basis points following the reduction by the RBA earlier this month.

And according to another comparison site, Mozo, CBA's credit cards have the highest satisfaction rates among major banks.

The Australian Bankers Association, which represents all majors, was unavailable for comment.