The high cost of credit
Interest rates on some cards are rising, putting debt-laden users under more stress, writes Lesley Parker.
You may well know your mortgage interest rate to two decimal places – before and after the recent rate cut – but chances are you don’t know the rate on your credit cards.
Amid all the hue and cry about home loan rates going up over the past year – when lenders decided they’d go even further than the central bank – not much was heard about cards.
“People are really concerned about mortgage interest rates,” says Lisa Montgomery, the head of consumer advocacy with non-bank lender Resi.
“These same people often have personal debt and these rates increased, too – in some cases by a lot more but they didn’t necessarily notice that.”
In market-research focus groups, people often know what their mortgage rate is but generally can’t say precisely what they’re paying on their credit cards, she says.
In fact, over the past year, while the Reserve Bank pushed the official cash rate 1 percentage point higher and banks added 1.5 percentage points to mortgage rates, some credit card rates jumped by 2 percentage points or more.
Now the cycle has turned and when the Reserve announced its 0.25 percentage rate cut a fortnight ago, it took only minutes – literally – for the big banks to start trumpeting the fact they’d be passing the savings on to home loan customers.
There was, however, nothing in their media releases about credit cards. Some providers quietly took the opportunity to raise interest rates instead.
Steven Anderson, the head of research at InfoChoice, says banks confronted with falling demand (household credit growth has slumped from 15 per cent a year ago to 7 per cent) took advantage of the past year’s rate rises to squeeze a bit more out of customers. They’ve also been lifting fees and charges.
The 14.2 million credit cards now on issue in Australia come to $44.7 billion in debt, or about $3100 a card.
Reserve Bank statistics show that 73 per cent of this debt is accruing interest. The average card limit is about $8700.
Cards can be a useful tool when handled with care but they’re a suspect in the rising number of personal bankruptcies in a softening economy where unemployment is expected to worsen.
According to the Dun & Bradstreet Consumer Credit Expectations Survey, one in four respondents expected to use their card to cover purchases they otherwise couldn’t afford during the September quarter.
read more: smh.com.au
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