A very recent report [i] from the Australian Securities & Investments Commission (“ASIC”), released on 4 July 2018, found that one in six credit card consumers (18.5%) is struggling with their credit card debt.

At June 2017 there were over 14 million open credit card accounts in Australia with total outstanding balances of almost $45 billion, with interest and fees being charged on $31.7 billion of this debt.

This is great for banks and credit card companies, who charged approximately $1.5 billion in fees on these accounts in FY17, and nothing like so great for the consumers. And ASIC concluded that only a few providers are taking proactive steps to look for and address persistent debt, repeated low payments and potential hardship.

ASIC highlighted a Senate inquiry’s findings [ii] about the dangers of balance transfers, where consumers transfer some or all of their credit card balance and pay low or no interest over a promotional period.

The Senate inquiry’s view was that such transfers can present a ‘debt trap’ for consumers. The ASIC report confirmed that the balance transfer ‘debt trap’ is real.

Their research found that a substantial proportion (32%) of consumers increase their total debt during the balance transfer period, even though reducing debt is one of the key considerations when balance transfers are taken out.

The problem is that most consumers (63%) do not cancel their old credit card after transferring the balance and then continue to use the new and old cards.

So when being tempted by a slick advertiser to wisely save interest with a balance transfer, or perhaps to snap up that not-to-be-missed, amazing bargain, remember what our grandparents told us:

  • Do not spend what you do not have.
  • Credit is money you don’t have.

I’m writing this just as much for me as for anyone else.

[i] ASIC’s REP 580 Credit card lending in Australia (4 July 2018).
[ii] Senate Inquiry final report “Interest rates and informed choice in the Australian credit card market” (December 2015). The Senate Inquiry was an inquiry by the Senate Economics References Committee into credit card interest rates.

9 July 2018