The dangerous traps that continue to catch out credit card owners
Wacky fictional movie spy Austin Powers and credit cards have something in common — which affects millions of Aussies a year.
Groovy movie spy Austin Powers would have to be a big fan of credit cards.
The reason why? It’s all in his name.
“Danger is my middle name,” proclaimed the shagadelic star of the 1990s film franchise.
And despite falling in popularity lately, credit cards remain a danger to millions of Aussies.
Reserve Bank of Australia statistics show that the total number of credit card accounts nationally has dropped from 16.7 to 15.8 million in the past year. But cardholders still owe almost $51 billion, with more than $31 billion — an average $2000 per account — accruing interest.
MORE: Why crowd-funding won’t save your finances
MORE: Telstra and Optus ditch dud deals
Credit card interest rates sit near 20 per cent, four times higher than mortgage rates.
Such a high rate means a $10,000 card debt can balloon to $12,000 in one year, $17,280 in three years and almost $25,000 in five years. This is compound interest in reverse, and it’s dangerous.
It’s important to know the biggest traps, and how you can avoid getting hurt.
MISSING REPAYMENTS
Most credit cards have up to 55 interest-free days after making a purchase. This is handy if you’re paying it off every month, but if you don’t you may find that all purchases get slapped with painfully-high interest rates.
Cardholders need to keep on top of their spending and their card balances, and perhaps set regular automatic transfers from other bank accounts to keep the debt under control.
Always pay the statement’s closing balance on or before the due date.
CASH ADVANCES
Never withdraw cash from your credit card account at an ATM. This attracts interest immediately — potentially at a higher rate than the regular interest rate.
Some cardholders are tricked into an interest bill because lenders can treat certain transactions — such as lottery tickets and online gambling, foreign currency purchases and some bills — as a cash advance rather than a purchase with a 55-day free period.
SAVED CARD DETAILS
Internet shopping continues to boom, and websites make it easy for credit card debt to blow out because they allow people to save their card details. That means any purchase is just a click away.
Scientists have found that we don’t feel financial loss as much when not handing over hard cash. With credit cards, we only feel the loss when a huge interest bill sucks the life out of our personal finances.
COLLECTING CARDS
Too many people play the credit card shuffle, loading up one card, then another and another, and transferring money between them all without ever paying down the debt.
Multiple cards magnify compound interest losses, so it may be worth considering a debt consolidation loan to banish those dangerous cards for good.
Holding more than one card can also result in multiplying the annual fees you pay. Ouch.
Credit card debt might not be as dangerous as the “sharks with frickin’ laser beams attached to their heads” from the Austin Powers movies, but it’s definitely not groovy, baby.
Originally published as The dangerous traps that continue to catch out credit card owners
Winter bill chill: how to cut your energy costs
Much of Australia is freezing right now so heaters – and energy bills – are surging. Here’s how to reduce some of the pressure.
Five ways to make interest rates work harder for you
The RBA’s decision to hold interest rates surprised many but rather than sit back and wait, here’s how you can build wealth with this year’s rate cuts so far.