Credit card debt is now sitting around $23 billion dollars in Australia according to ASIC which is an interest bill of over $4 billion each year.
This represents over $3117 of credit card debt per card holder in Australia, with the average card holder paying around $600 in interest per year.
This is an extraordinary level of credit card debt owed by ordinary Australians and is an excellent reminder of how expensive credit cards can be if not managed properly.
Research released this week by creditcardfinder.com.au showed that out of the 366 credit cards compared, one third offered a rewards program. While you can find some credit cards with a rewards program and no annual fee, most cards will take a long period of time to earn any benefits for the majority of their cardholders.
For Visa and MasterCard credit cards with rewards programs, you would need to spend $22,000 to earn a $100 Myer gift card. This would take over two years to earn based on a $200 spend per week and over four years with a $100 weekly spend.
For American Express cards, you would need to spend $12,120 to earn a $100 Myer gift card which would take just over 13 months of shopping based on a $200 weekly spend or 2.3 years of shopping at $100 per week.
Annual fees for credit cards with rewards programs attached are generally higher, with an average annual fee of $154 compared to $80 for non-rewards cards so you will need to weight up the value of rewards and your spending habits before signing up and not just be lured by the potential rewards when you may in fact be paying for them yourself.
Also keep in mind that your discipline around using credit cards or lack thereof may contribute to having to pay interest on a debt that you can’t clear in full each month, which may also outweigh the benefits of any rewards.
If you fell into the trap of the average credit card holder and owed the average $3117 on your card, paying the minimum monthly payment, at an interest rate of 18 per cent, would take you 25 years to pay it off. This is nearly as long as paying off a mortgage. If that sounds incredulous, over this time you would repay a total of over $9969 – an extra $6852 in interest.
If instead of only paying the minimum, you paid a monthly amount of $150 in this example, you would knock more than 23 years off your debt, paying it all off in two years, which will save you $6000 in interest.
Many people think they will be able to control their credit card debt, but as you can see, when it comes to compounding interest, a small balance can quickly get out of hand. Think carefully before getting a credit card and don’t be lured by rewards.
Source: Olivia Morgn, Money Columnist, SMH August 2015
Police Bank doesn’t offer a costly rewards program but rather a great rate with our Visa Credit Card.