Australians love their credit cards, with more than 20 million new accounts opened in the last five years. But is your credit card right for you? YBI reports why it’s might be time to cut up your card for good.
Australians are a nation of debtors. Consumer debt is at an all-time high. A recent report by ASIC found Australians are drowning in over $45billion of credit card debt. 21.4 million credit card accounts have been opened by Australians in the last five years.
Of those, ASIC warns that more than half a million people are in arrears and close to one million are in persistent debt.
In fact, according to the survey, almost one in five Australians are feeling overwhelmed by debt, with many paying off debt on a card that is unsuitable for their needs.
Indeed, a review of the 21.4 million credit card accounts opened in the past five years estimated consumers could have saved $621 million in a single year if they had switched to a more appropriate credit card with less ‘benefits’ and a lower interest rate.
In the 2018 Banking Royal Commission, many of the big banks came under fire for their credit card practices with Macquarie, Citi and American Express coming under the hammer for allowing grandfathered clauses to continue despite the rules of the Future of Financial Advice (FOFA), which banned ban all conflicted commissions. From April of this year, the banks have been forced to discontinue these product commissions, but not before millions had been paid by consumers in added interest.
10 of Australia’s largest credit providers were part of the ASIC review (American Express, ANZ, Bendigo and Adelaide Bank, Citigroup (Citi), CBA, HSBC, Latitude, Macquarie, NAB and Westpac). Each one has given commitments to change many of the practices that were adding to consumer debt. These include taking proactive steps to help consumers with problematic credit card debt; fairer approaches for balance transfers and commitments to restrict the amount by which consumers can exceed their credit limit.
Nonetheless, credit card debt remains an issue for many Australians.
Young Aussies are, particularly at risk. ASIC reports young people are more likely to be in delinquency, with payments more than 60 days past due or having had their debt written off by the bank for persistent severe delinquency.
Balance transfers were also getting many people into further trouble, due to a lack of understanding around interest-free periods.
Following a 2017 Senate Inquiry, ASIC warned these enticing credit card offers — balance transfers from one card to another — were ‘a debt trap’
“In the Senate inquiry’s view, these transfers can be present a debt trap for consumers… if they fail to pay off the balance in the promotional period, keep the card the balance was transferred from… or make new purchases on one or more of the cards,” the research said.
In fact, 30 per cent of consumers increased their debt by 10 per cent or more after transferring a balance to a promotional “balance transfer” card.
550,000 people are in arrears following a credit card transfer and 930,000 with persistent debt as of June 2017.
If this sounds like an all too familiar refrain, it may be time you considered doing something about it. Speaking with your financial adviser about consolidating your debt may be the first best step.