Credit card interest rates are "inexplicably high", according to one of Australia's leading consumer advocates, with financial counselling services seeing more people with unmanageable debts into six-figure sums.
As Reserve Bank of Australia executives appeared at a Senate estimates committee to explain the gap between the record low cash rate of 2 per cent and card rates of up to 26 per cent, consumer advocates have called for a cap on rates charged by credit providers.
Most credit card providers have failed to pass on the Reserve Bank cash rate cuts over the past four years, according to comparison website Finder's money expert Michelle Hutchison.
"Credit card providers are only happy to follow the cash rate when it suits them," she said. "That's what makes consumers angry."
Finder is advocating for a cap on credit card interest rates to curtail excessive rates of up to 25.9 per cent for credit card purchases and 29.49 per cent for cash advances.
Australians owe about $51 billion on credit cards, according to the Reserve Bank of Australia, with 22 per cent of consumers failing to pay the full debt each month.
Australia's big four banks control half of the credit card market with Choice spokesman Tom Godfrey advising consumers to shop around.
"Credit card interest rates are inexplicably high from a consumer perspective," he said.
"If you have your credit card with one of the big four banks and you are paying interest, you are wasting your money."
He said those who depend on credit cards to manage day-to-day expenses were particularly vulnerable.
"If they are paying unnecessarily excessive interest on a card, they will find themselves in a debt trap which is hard to recover from," he said.
Credit card debt is a leading reason why people seek financial counselling services, according to principal solicitor with the Financial Rights Legal Centre, Alexandra Kelly.
"Typically, they may start with one card and when they reach the limit on that card, they get a second card and a third card and so on," she said. "They end up just shuffling the debts around while the interest compounds, leaving them in unmanageable debt."
The biggest debt she has seen on a single card is $90,000, while clients with multiple cards can end up owing hundreds of thousands of dollars.
"We have had cases of people who have accrued debts of $100,000 or $200,000 on multiple cards - that is the worst case scenario," she said.
Even consumers with smaller credit card debts can get into financial strife, according to Consumer Action Law Centre chief executive Gerard Brody.
"The structure of credit cards which only require a minimum monthly repayment is really designed to keep some people in long term financial difficulty," he said. "They might pay the minimum amount back each month but they continue to accrue interest which leaves them in this never ending debt."