Credit card minimum repayments hit customers hard
Credit card customers can easily get caught out if they don’t pay close attention to their statements. These are some of the ways they can end up in more debt.
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Exclusive: Credit card minimum repayment amounts need to be increased and bills need to be made clearer to help customers pay back their debts faster, experts say.
There are hundreds of credit cards available on the market but dozens still have the minimum amount to be repaid set at the lowest possible level of just two per cent.
Latest Reserve Bank of Australia figures show Australians owe a massive $43.7 billion on personal credit cards and $27.1 billion is accruing interest, often attracting interest rates around 20 per cent.
Consumer group Choice’s spokeswoman Erin Turner said there needed to be clearer information to customers to help them pay off their debt.
“Credit cards can trap people into a cycle of high cost debt,” she said.
“It’s essential that companies communicate to customers in a crystal clear way.
“It’s often not clear to people what the impact will be if they only pay the minimum amount.”
Analysis by financial comparison website Mozo showed on their database a majority of lenders only require customers to pay back between two or three per cent of their total debt.
Lender ING requires their credit card customers to repay a minimum amount of five per cent of their debt owing each month.
But back in 2017 they introduced credit deals and set minimum repayments at 10 per cent
It is understood after customer pushback it was dropped back down to just five per cent.
Mozo’s spokeswoman Kirsty Lamont said minimum repayments could end up “being a lifelong death sentence” and minimum repayments should be increased.
“Setting a minimum repayment at two per cent means it’s very difficult to pay off that card in a reasonable time frame,” she said.
“As a result we are seeing thousands of Australian credit card customers burdened with credit card death sentences that can stretch for decades.”
Mozo data found on an average card debt of $2383 with an average interest rate of 16.58 per cent and annual fee of $50, a two per cent minimum repayment would take a customer seven years and two months to pay off an attract $2094 in interest and fees.
This compares to when the minimum repayment is set at five per cent, which would take the customer making the lowest repayments two years to pay off and cost $576 in interest and fees.
The banks still charging customers absurd fees
On most credit card statements that minimum amount required on the bill is highlighted, not the total balance, which experts say could result in customers only making these low repayments and end up costing themselves more.
Despite the low minimum repayments the Australian Banking Association’s chief executive officer Anna Bligh said all banks must “clearly state a minimum repayment warning so customers know how long it will take to pay off their credit card and the amount of interest accrued if they continue with only the minimum repayment”.
Originally published as Credit card minimum repayments hit customers hard