New research from consumer advocacy group CHOICE has revealed that paying off an average credit card balance with one of the big four banks can take over 26 years if you only make the recommended minimum and that most consumers don’t understand the implications of only making minimum repayments.
54% of people don’t know the meaning of the minimum monthly payment on their credit card statement. 40% of people believe that paying the minimum monthly payment means they won’t be charged interest on credit card debt when it only means that late fees won’t apply.
CHOICE has released the research ahead of its Senate Committee appearance, where it will be calling for reforms that make it easier to compare, switch and cancel credit cards.
“With the big banks responsible for four out of every five credit cards in Australia, it appears they’ve set up systems to trap consumers into decades of debt,” says CHOICE CEO Alan Kirkland.
“When it comes to ‘low’ rate cards, the longest minimum repayments are through Westpac, with it taking 26 years and 4 months to pay off a $4433 debt with an interest bill of $5,602.
“CBA’s ‘low’ rate card carries a debt sentence of 17 years and 11 months and an interest bill of $4,584.
“Consumers with an average credit card balance would need to spend a lifetime paying off their cards at the monthly minimum rate – and this is on low rate cards. Your sentence is extended dramatically if you happen to have a high-fee rewards card.
“Alarmingly, consumers trying to cancel credit cards are often forced to talk to sales people who try to up sell them to worthless rewards cards, even if they were struggling to pay off a ‘low’ rate card.
“The banks also force consumers to visit bank branches for interviews or insist you cut your card in a particular way before posting it in to the bank,” says Mr Kirkland.
In order to cancel a CBA card, a customer needs to visit a bank branch or call to speak to a customer service representative. Westpac and NAB require card holders to call or send a physical letter to cancel a card.
ANZ requires customers to call or write a letter to cancel a credit card account. In addition:
“ANZ will only cancel the credit card when the account holder has returned it to ANZ cut diagonally in half (including any chip on the card) or has taken all reasonable steps to return it to ANZ.”
It is unclear if ANZ will cancel a card that is returned cut vertically or horizontally.
“There is no reason why the process of cancelling a card should not include an online option,” says Mr Kirkland.
“This is just one of many traps the banks set for their credit card customers.”