If you're paying interest on a credit card with one of the big four banks, then it's a good time to switch, consumer advocacy group Choice suggested this week.
A recent review of credit cards by the group found consumers could reduce interest rates by more than 10 per cent by ditching products offered by the major banks.
Despite official interest rates falling 2.25 percentage points since November 2011, ANZ, CBA, NAB and Westpac still charge around 20 per cent interest on their cards and do not have one product in the top 20 cards on the market.
Choice Head of Media Tom Godfrey said that the group has found that many cards are overly complex and designed to distract consumers from very high interest rates by putting a focus on rewards schemes, interest-free periods, balance transfers and 'low' annual fees.
“While the major banks try to convince you their ‘low-rate’ cards are worth considering with an interest rate of 14 per cent they are still a long way from the best deals on offer”, Godfrey said.
“According to the RBA, in August 2014 the average high rate credit card charges 19.75 per cent, whereas the best rate on offer is 8.99 per cent through Community First McGrath Pink Visa and Low rate visa.
“Victoria Teachers Mutual Bank Visa Platinum, Maritime, Mining and Power Credit Union Visa and Bank Mecu then come in at 9.99 per cent, 10.12 per cent and 10.14 respectively.”
Earlier this year Choice’s consumer pulse survey found 19 per cent of Australians are living off their credit card to get through to pay day. This comes on the back of another survey in 2013 that found 48 per cent of Australians were unaware or unsure about the interest rate they pay on their credit card.
“While credit cards can be a convenient payment method for many consumers, knowing the interest rate you pay and staying on top of repayments each month can save you a lot of money”, Godfrey said.
For someone with a $2000 debt, paying off $50 a month at a 19.75 per cent interest rate will take five years and six months and they will pay $1,289 in interest. For a credit card with an interest rate of 8.99 per cent, it will only take 4 years to pay off the same amount and they will only pay $386 in interest.
For a list of the top 20 credit cards visit choice.com.au/top20creditcards or to compare, ditch and switch to a better credit cards visit http://betterbanking.choice.com.au/ditch-and-switch.
Tips for managing your credit card:
− Find out what interest rate you’re paying
− If it’s 14 per cent or more it’s time to switch
− If you want to stay with a major bank, ask for a better rate
− Create a direct debit to pay as much as you can but at least the minimum payment each month to avoid late fees and a listing on your credit report
− Every dollar extra above the minimum balance saves you interest.