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3.1. High interest charges

Credit cards have the highest average interest rate out of most standard loans. Only some short-term or “payday” loans have higher interest rates, and they are nowhere near as common as credit cards. To put this in perspective, here are the average interest rates for different types of loans in Australia in 2015:

  • Standard credit cards: 19.75% p.a.
  • Low rate credit cards: 13.05% p.a.
  • Home loans: 4.65% p.a.
  • Personal loans: 14.17% p.a.

(Source: Reserve Bank of Australia, Statistical Table F05)

" Credit card interest rates vary considerably and will be determined by other factors such as the risks of unsecured lending, plus the various product features a particular card has."

Australian Bankers Association spokesperson
as reported by The Sydney Morning Herald, 2015
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3.1. High interest charges

If you had a credit card debt of $3000 on a card with the average interest rate of 19.75% p.a. and only paid the minimum, it would take you 32 years and 6 months to pay off the balance and cost you $12,621 in interest.

If this debt were on a low rate credit card charging 13.05% p.a. in interest, it would take 15 years and 10 months to clear the debt and cost $5779, or around half the time and money of a standard credit card.

The best way to avoid falling into the trap of paying high interest charges is to pay the balance in full for every statement period. If that’s not possible, then it’s important to pay as much as you can, and at least try to pay the minimum plus the cost of the interest that will be charged for the previous statement cycle so that debt is less likely to spiral out of control.