Kiwis overpaying interest on credit cards: survey

Thursday, 10 December 2020

Balance transfer cards may help Kiwis saving significantly on their debt, particularly over Christmas.

Kiwis could collectively be paying $247 million in excess interest to credit card companies, according to a financial research website.

Finder surveyed 1478 credit card owners and found that 72 per cent of them had been very loyal to their card provider, staying with them for at least five years instead of switching to potentially cheaper rates.

With more than 2.7 million credit card holders in the country, and the annual monthly credit card spend being $1172, Finder has calculated that credit card owners could be collectively overpaying $247m more in interest over the next two years.

The figure used the average credit card interest rate, currently about 19.4 per cent.

Acting ANZ chief executive says the bank had launched customer suitability checks, which found one elderly couple banking with ANZ had $80,000 in credit card debt, and were paying $18,000 a year in interest, when they had $200,000 in a deposit acco

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Consumers were advised to shrug off their loyalty and look for a lower credit card rate. The lowest rate on Finder’s website, which does credit card comparisons, was currently 9.95 per cent, the site's publisher Kevin McHugh said.

Kiwis were paying about $251.32 in interest on the average purchase over two years, so at the lowest interest rate currently on offer, they could save about half of that, about $126.

'If you’ve been with your credit card provider for a number of years and haven’t reviewed your rate, there’s a good chance you’re paying more interest than you could be elsewhere,’' McHugh said.

“By switching to a more competitive offer, you can lock in immediate savings.''

This was particularly true as people accrued higher debt ahead of Christmas. Using a balance transfer card meant users could transfer the balance of their debt to another card with no interest for up to six months, or a low rate for the life of the balance.

Savvy consumers could pay off their festive debt faster that way, McHugh said. But “as with any type of credit card product, fees and limits may apply, so it’s important to check the terms and conditions before signing up''.

However, an even better solution could be to simply pay off the bill. Tom Hartmann, of Sorted.co.nz, said if the monthly bill was paid off in full, there was no interest at all, although the annual fee that credit card providers usually charged did mean that shopping around was valid.

Even paying off more than the minimum monthly amount could save a large amount in interest, he said.

'’When you make the minimum payment, that loan is structured entirely in the interests of the lender. When you make more than the minimum payment, you effectively structure it more in your favour.’'

He suggested people visit Sorted’s debt calculators to see how much they could save in interest just by tweaking the amount of repayments.

Things to watch with balance transfer credit cards include the fact that if the balance is not paid off by a set time, the card will likely revert to standard credit card rates.

Some also charge a one-off transfer fee ranging from 1 per cent to 3 per cent of the total balance, and/or an annual fee, although some issuers may wipe this for the first year.