Many credit card users are struggling under a mountain of debt that may never be repaid

One in six consumers is struggling under a mountain of credit card debt that might never be repaid, according to an alarming ASIC report.

The Australian Securities and Investments Commission (ASIC) report showed 18.5 per cent of consumers were overwhelmed by their credit card debt load with outstanding balances now totalling $45 billion.

Assessing the 21.4 million credit card accounts opened between 2012 and 2017, ASIC found 18.5% of Australian consumers are being swamped with credit card debt, and they blame poor advice and lending practices by Australia’s major financial lenders.credit card

The report said banks and credit card companies were in the midst of a revenue bonanza with interest being reaped on $31.7 billion of that $45 billion debt figure.

ASIC warned that enticing credit card offers — notably balance transfers from one card to another — were “a debt trap”, with 550,000 people in arrears and 930,000 with persistent debt as of June 2017.

RateCity reports that some providers are currently offer credit cards to people with incomes less than $15,000.

New regulations

To counter the growing debt mountain that is lucrative for banks but bad for customers, ASIC proposed tougher responsible lending regulations commencing January next year requiring lenders to assess whether the customer can afford to repay the credit limit within three years. 

investor-needs-to-know-about-finance-tax-and-the-law

ASIC deputy chairman Peter Kell said despite rules introduced in 2012, not all credit providers had taken proactive steps to counter persistent revolving debt.

ASIC’s proposed credit card reforms are another step towards better regulation around credit cards but more work is needed for Australians to step off the credit card debt treadmill.

RateCity spokesperson Sally Tindall said the reforms needed more ‘stick’ if they want to reduce Australia’s overall debt.

“People need to be forced to pay down their debt and minimum repayments are essential part of this.

“RateCity data shows that 54 per cent of lenders ask customers to pay just two per cent of their credit card debt every month, while the highest minimum repayment is just five per cent, offered by three providers.

“That’s simply not enough. We would like to see the majority of lenders increase their minimum repayments to 10 per cent, with a government-mandated minimum of five per cent,” she said.

The report from ASIC highlights just how many customers fall into the pitfalls a balance transfer can bring, with 31.6 per cent of people ending up in more debt. Credit Card

“One of the main reasons people come off second best after taking out a balance transfer is that they don’t realise they lose their interest free days for new purchases, which means they get hit with interest as soon as they hit the shops.

“We would also like to see all lenders offer a low rate credit card option for their customers.

“Many customers get blindsided by the bells of whistles of rewards cards when in many cases they would be financially better off with no-frills, low rate card.

“RateCity data shows that just 4 per cent of all cards on the market offer an interest rate of under 10 per cent.

“Our banks can do better than this,” she said.

Lowest rate credit cards on RateCity.com.au database

Company Card Rate Annual fee Interest free days (up to)
American Express Low rate 8.99% $0 55
Community First Credit Union Low rate visa / McGrath Pink Visa 8.99% $40 55
Easy Street Credit Union Easy Low Rate Visa credit card 8.99% $40 55
Bank Australia Low Rate Visa Credit Card 9.39% $59 0
G&C Mutual Bank Low Rate Visa Credit Card 9.49% $50 50


Big 4 lowest rate cards

Company Card Rate Annual fee Interest free days (up to)
CBA Essentials credit card 9.90% up to $60 pa 55
Westpac Lite Card 9.90% $108 45
ANZ ANZ Low Rate 12.49% $58 55
NAB Low rate card 13.99% $59 55

Source: RateCity.com.au


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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