Credit card debt is not a cheap form of debt, from the consumer’s point of view. Certainly it’s unsecured but that also brings with it higher interest rates – between 8.99% and 23.50% p.a., according to the CANSTAR database. A credit card also makes it easy – a little too easy sometimes – to spend on impulse if you’re not disciplined.
It seems that interest rates on credit cards remain high whether the Reserve Bank decreases the official cash rate or not. This is in stark contrast with home loans and term deposit accounts, which reflect any official cash rate movement – up or down – within a very short time frame of rate announcement.
What credit card interest rate do you pay?
As mentioned above, credit card interest rates can vary significantly – which makes it a bit concerning that a CANSTAR survey of 3,000 consumers has found that a whopping 34% – just over one third – don’t know what interest rate they are paying on their credit card. A further 51% conceded they could have found a better deal at a lower interest rate, had they looked around a little more. Sadly, 19% blamed credit card spending for their financial difficulties.
What could your credit card debt cost you?
The following tables show the amount of interest that would be payable on credit cards with interest rates of 9% and 19% – and how long it would take to clear that debt with minimum repayments.
Interest rate of 9% p.a.
| Outstanding balance |
Interest per year on revolving balance |
Time to pay off debt with minimum repayments |
Total interest paid |
| $5,000 |
$450 |
15 years 10 months |
$2,630 |
| $10,000 |
$900 |
20 years 4 months |
$5,594 |
| $15,000 |
$1,350 |
23 years |
$8,558 |
Source: www.canstar.com.au Assumes only minimum repayments are made every month.
Interest rate of 19% p.a.
| Outstanding balance |
Interest per year on revolving balance |
Time to pay off debt with minimum repayments |
Total interest paid |
| $5,000 |
$950 |
38 years 2 months |
$15,121 |
| $10,000 |
$1,900 |
51 years 1 month |
$32,779 |
| $15,000 |
$2,850 |
58 years 7 months |
$50,437 |
Source: www.canstar.com.au Assumes only minimum repayments are made every month.
Which cards offer outstanding value?
To a certain extent, what you need from a credit card will depend on how you use it. If you spend up big but pay the outstanding balance in full each month, for example, the interest rate won’t matter too much for you. On the other hand if you’re constantly juggling a debt, the interest rate you’re paying is very important indeed.
The good news from the Canstar survey is that 45% of survey respondents do shop around to find the best credit card rate possible for them; CANSTAR helps to make that easy, assessing 262 credit cards from 67 providers to determine which offer outstanding value at varying levels of spending. You can check the details of our Credit Cards Star Ratings report here, and compare credit cards here