Credit card interest bill climbs, and experts warn of sins to avoid

Consumers have increased their credit card interest bills and experts are calling for Aussies to recognise these costly errors.

Consumers have increased their credit card interest bills, and finance specialists say getting this debt back under control begins with recognising some common costly errors.

The latest Reserve Bank of Australia data shows almost $450 million was added to personal credit card debt accruing interest in November and December amid the Black Friday sales and Christmas shopping, taking the total owed to $20.2 billion.

It halted a long-running trend that saw these debts drop $7 billion or 25 per cent last year amid more conservative consumers and the rapid rise of buy now, pay later services.

Defence Bank CEO David Marshall says the arrival of post-Christmas credit card statements may shock some cardholders, and the first step to managing should be zeroing in on the interest rate.

Defence Bank CEO David Marshall says the interest rate you pay is crucial.

“Through our research we know that one in three Australians are not aware of their credit card interest rate,” Marshall says.

“And four out of five of those are paying above 10 per cent,” he says.

The standard credit card interest rate is almost 20 per cent, according to the RBA, and Marshall recommends transferring your expensive debt to a low-rate card.

“Look for a card that offers a single-digit ongoing interest-rate,” he says.

“Less interest will mean a balance can be paid off more quickly.

“Take advantage of special introductory rates, and be wary of cards with added extras like rewards programs and insurance. These cards often come with both a high annual fee and high interest rate.”

STOP YOUR SINS

New research from comparison website Finder.com.au has found that 51 per cent of cardholders had committed a “credit card sin” in the past 12 months.

The most common mistakes were 20 per cent making a late payment, 18 per cent impulse buying, 17 per cent failing to check their statement, and 10 per cent maxing out their credit card.

Finder.com.au spokesman Taylor Blackburn warns of penalties for missing payments.

Finder.com.au spokesman Taylor Blackburn says credit card misuse is rife in Australia.

“Better card management can literally save you thousands of dollars in interest and charges,” he says.

“Missing a payment attracts a penalty, so set up monthly reminders in your phone to make your payments.”

Blackburn’s top tips for reducing credit card debt include:

• Repaying the highest interest rate card first.

• Considering zero per cent balance transfer cards.

• Building an emergency savings fund to avoid maxing out the credit card when an unexpected expense strikes.

• Contacting your card issuer to discuss a payment plan if you are having problems making repayments.

“Make sure you are still paying the minimum on any and all cards to protect your credit score and keep you from being charged additional fees,” Blackburn says.

@keanemoney