How young people are paying big for 'credit complacency'
THE nation's addiction to credit card spending has led to some of the highest plastic debt levels on record with nearly two thirds accruing interest. Latest statistics from the Reserve Bank of Australia has found Australians now owe $52.2 billion on plastic and more than $31.6 billion is accruing interest.
Despite this consumers aren't shy to admit they are signing up to cards just so they can collect rewards points, even though card schemes experienced significant cutbacks on July 1.
New research from financial comparison website Finder.com.au found 28 per cent of Australians sign up to a credit card so they can get points and one in ten take out a credit card after receiving an invitation from their financial institution.
The site's spokeswoman Bessie Hassan said consumers needed to be more aware of the scaling back of the rewards point scheme which has significantly impacted bonuses received.
"Given recent changes in the rewards landscape with banks devaluing rewards programs, Aussies are still interested in earning points,'' she said.
"Don't get complacent with your existing stash of credit cards, banks are constantly trying to outdo one another to entice new customers."
The research also revealed the most common reasons for signing up to a credit card included to cope with an emergency (36 per cent), general spending (54 per cent) and paying household bills (37 per cent).
Credit cards typically attract interest rates around 18 per cent, but for the savvy they can snare deals as low as 7.99 per cent.
One of the nation's largest credit card providers, National Australia Bank, said 61 per cent of their customers pay off their card in full each month.
The bank's executive general manager of consumer lending, Angus Gilfillan, urged cardholders to zoom in on the fees and charges associated with their card and work out what suits them best.
"Ask yourself whether you want a card with a low interest rate, a low annual fee, or one that rewards you for your everyday spending,'' he said.
"It's all about finding the card that best suits your needs.
"We encourage our customers to pay off their credit card balance every month, if that's what you do, then a card that has low annual fees and/or rewards could be right up your alley."
But cardholders should be mindful that balance-transfer cards can hit customers with hefty fees which range between one and three per cent of the total balance.
Sales manager Alex Perna, 29, has seen some friends spiral into credit card debt but he's certain he won't be joining them.
"I have a few friends in credit card debt and it's the worst thing in their life, they pay ridiculous amounts of interest,'' he said.
"I had one friend with $20,000 on a credit card and she was paying interest-only on the card, she wasn't even paying any of the debt off."
Mr Perna ensures he pays off any money owing on his card every few weeks to avoid being hit with interest costs.
"I've got one credit card and I really just use it as a method of payment rather than use it to go into debt,'' he said.
"I put all my bills on it and anywhere that accepts credit card, then I wipe the debt every few weeks, that's how I manage my budget each month.
"I will never pay the interest rate of 18 per cent."