Debt fears for Christmas as credit card arrears hit three-year high

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Consumers are increasingly relying on credit cards to make ends meet while interest rates and annual fees on many cards are rising, raising fears of a debt hangover ahead of the Christmas spending period.

The Commonwealth Bank increased interest rates on a range of its rewards credit cards by 0.75 percentage points, to 20.99 per cent, at the start of this month.

Rachel Wastell says she missed a crucial charge among the changes to the conditions on her credit card.

The bank also increased the interest rate on its low fee credit card by 1.25 percentage points to 20.99 per cent, according to comparison site Mozo, and in August, the bank also increased the interest rate on its low rate credit card by 0.75 percentage points to 13.99 per cent.

Similarly, in September, ANZ increased rates on six of its rewards credit cards by 0.25 percentage points while also increasing the interest rate on its low rate credit card – balance transfer and cash back – by 1.25 percentage points, to 13.74 per cent.

Credit card providers have also been increasing the fees they charge cardholders, with some increasing their fees significantly. The vast majority of the increases have been for rewards cards.

Providers say they have a range of cards that are designed to meet the varying needs of customers, who are advised to shop for a card that best suits their circumstances.

It pays to thoroughly read a card’s terms and conditions. However, as Rachel Wastell, 33, a finance expert and spokesperson at Mozo, found out, it is easy to miss changes in terms and conditions.

She missed an important change to the conditions on her rewards credit card, when the minimum monthly spend on the card to avoid paying the fee was almost doubled.

“My rewards points credit card worked well for me and I earned points on a trip overseas, but when I returned I noticed I was charged a monthly fee,” Wastell says.

When she contacted her bank, Wastell was told the change in conditions was at the bottom of her statement. “I read my statements, but I missed the fine print at bottom,” she says.

“Despite being across interest rates in the market, these long-winded statements can make it easy to miss changes to conditions,” she says.

“The first thing I did was jump online [to look for] a zero per cent balance transfer card, and found a card that gave me two years to pay off the debt, interest-free,” she says.

Figures from credit agency Equifax show the number of applications for credit cards were up almost 7 per cent in the three months to September 30 this year, compared to the same quarter a year earlier. Arrears for credit cards are also at their highest since 2021, with arrears of more than 90 days up 19 per cent year-on-year.

Those who fail to pay off their credit card debt, in full, by the due date, pay interest that can be more than 20 per cent a year.

The number of mortgages in repayment arrears between 30 and 90 days is 47 per cent higher than 12 months ago. However, like credit card arrears, it is off a low base.

Kevin James, general manager advisory and solutions at Equifax, says unsecured credit to make ends meet is not a viable long-term strategy if cardholders fail to make repayments on time.

He says the upcoming Christmas spending period could see more people unable to pay off their credit card debts.

For those who have difficulty paying off their card balance, in full, by the due date, there are more than a dozen credit cards available with interest rates under 10 per cent.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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