At the end of May we passed another credit card milestone.
Official figures from the Reserve Bank showed we owed just over $4 billion in interest-bearing balances on our credit cards.
All up, including non-interest bearing debt (that which is within the 55 interest-free days) we hit the end of May owing a shade over $6b, which is over $1300 for every person resident in these isles.
It's a lot, but evidence suggests that, taken in isolation, as a nation we are becoming better users of those deceptively simple-seeming flexible friends.
But the credit card stories and mega-trends of our time indicate how many of us could be better still at using our cards.
More responsible users
For every $1 owed on credit cards not costing the holder interest, there's $1.90 where it is, because it's only been on the card for more than 55 days.
Shopping with a credit card is fine, but pay off the debt in full each month. Photo: 123rf.com
Back in June 2005 the ratio was $1 of interest free balance for every $2.09 of interest-bearing debt. The portion attracting interest was a little over $4b at the end of May.
The collective cost was 17.4 per cent, based on the average interest rate on interest-bearing card debt. Annualise that, and it is about $700 million of interest for the banks.
Lesson 1: Use cards to transact rather than a place to amass debt. A survey in 2013 found 57 per cent of people paid their credits card off in full each month.
The interest we really pay
Standard credit cards have rates of between 19.95 per cent and 20.95 per cent. But with our card usage patterns, the average weighted interest we actually pay en masse on our interest-bearing advances is 17.4 per cent.
Aim to pay low, or better still, no credit card interest.
That's due to all the low rate cards out there, and also because of the balance transfer deals we grab, shifting credit card debt from one bank to another.
In June 2003, it was 19 per cent. In 2007, it was 18.4 per cent and In 2012, it was 17.4 per cent.
Lesson 2: Don't assume that paying 19.95 per cent for credit card debt is normal. Shop around for a cheaper deal. You can have your credit card with a different bank to your mortgage.
Banks are creaming it
Despite card users managing to drag down the interest their pay en masse, the banks have cleverly increased the gulf between mortgage rates and credit card rates.
Banks have enjoyed a sustained boom in credit card debt.
In 2007, floating rate mortgages were 10.1 per cent. Credit cards were 18.9 per cent. That's a difference of 8.3 per cent. Today the difference is 11.8 per cent.
Lesson 3: Banks are skilled at increasing their profits. You have to be equally skilled at minimising the help you give them.
Simplicity
The average number of pages in the credit card terms and conditions of the big banks is 36.
The terms and conditions of credit cards are lengthy reads.
That's because having a credit card is a privilege the issuer can take back at any time.
It sets obligations you "must" comply with. There are a lot of them. The Westpac terms and conditions contract used the word "must" 34 times.
Lesson 4: Read the contract. Learn what you are letting yourself in for.
It's not your card
Credit cards belong to the issuer. You must take the scissors to yours, if told to.
If the bank says cut, you cut.
Westpac's terms and conditions say: "[if] You are notified that your card or Westpac PayTag, has been cancelled, you are required to cut it in half, return it to any Westpac branch and immediately pay the outstanding balance of the account and any reasonable costs incurred by us in collecting payment."
Lesson 5: Credit card debt can become "on demand" the moment the bank learns your finances are in rocky shape.
Official figures from the Reserve Bank showed we owed just over $4 billion in interest-bearing balances on our credit cards.
All up, including non-interest bearing debt (that which is within the 55 interest-free days) we hit the end of May owing a shade over $6b, which is over $1300 for every person resident in these isles.
It's a lot, but evidence suggests that, taken in isolation, as a nation we are becoming better users of those deceptively simple-seeming flexible friends.
But the credit card stories and mega-trends of our time indicate how many of us could be better still at using our cards.
More responsible users
For every $1 owed on credit cards not costing the holder interest, there's $1.90 where it is, because it's only been on the card for more than 55 days.
Shopping with a credit card is fine, but pay off the debt in full each month. Photo: 123rf.com
Back in June 2005 the ratio was $1 of interest free balance for every $2.09 of interest-bearing debt. The portion attracting interest was a little over $4b at the end of May.
The collective cost was 17.4 per cent, based on the average interest rate on interest-bearing card debt. Annualise that, and it is about $700 million of interest for the banks.
Lesson 1: Use cards to transact rather than a place to amass debt. A survey in 2013 found 57 per cent of people paid their credits card off in full each month.
The interest we really pay
Standard credit cards have rates of between 19.95 per cent and 20.95 per cent. But with our card usage patterns, the average weighted interest we actually pay en masse on our interest-bearing advances is 17.4 per cent.
Aim to pay low, or better still, no credit card interest.
That's due to all the low rate cards out there, and also because of the balance transfer deals we grab, shifting credit card debt from one bank to another.
In June 2003, it was 19 per cent. In 2007, it was 18.4 per cent and In 2012, it was 17.4 per cent.
Lesson 2: Don't assume that paying 19.95 per cent for credit card debt is normal. Shop around for a cheaper deal. You can have your credit card with a different bank to your mortgage.
Banks are creaming it
Despite card users managing to drag down the interest their pay en masse, the banks have cleverly increased the gulf between mortgage rates and credit card rates.
Banks have enjoyed a sustained boom in credit card debt.
In 2007, floating rate mortgages were 10.1 per cent. Credit cards were 18.9 per cent. That's a difference of 8.3 per cent. Today the difference is 11.8 per cent.
Lesson 3: Banks are skilled at increasing their profits. You have to be equally skilled at minimising the help you give them.
Simplicity
The average number of pages in the credit card terms and conditions of the big banks is 36.
The terms and conditions of credit cards are lengthy reads.
That's because having a credit card is a privilege the issuer can take back at any time.
It sets obligations you "must" comply with. There are a lot of them. The Westpac terms and conditions contract used the word "must" 34 times.
Lesson 4: Read the contract. Learn what you are letting yourself in for.
It's not your card
Credit cards belong to the issuer. You must take the scissors to yours, if told to.
If the bank says cut, you cut.
Westpac's terms and conditions say: "[if] You are notified that your card or Westpac PayTag, has been cancelled, you are required to cut it in half, return it to any Westpac branch and immediately pay the outstanding balance of the account and any reasonable costs incurred by us in collecting payment."
Lesson 5: Credit card debt can become "on demand" the moment the bank learns your finances are in rocky shape.
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