Aussies Pay Average $4,700 Interest Yearly per Credit Card

Every time Australians swipe their credit cards, they pay interest rates to the banks which charge them an average interest of $4,700 a year per card.

Experts recommend paying off credit card debts as quickly as possible because at an average annual interest of $4,700 and minimum repayments, it would take Aussie credit cardholders 49 years to pay it off and cost the card owner $14,600 in total interest alone.

However, if the cardholders pay $250 monthly, the card debt would be finished in two years and save the cardholder $13,700 in interest, explained Delia Rickard, executive of the Australian Securities and Investments Commission (ASIC).

Due to their tendency to pay only minimum on their card debts, Australians owe a total of $36 billion to credit card companies, according to a report from the ASIC. The amount accrues an astounding amount of interest.

The ASIC report said the credit card balances have more than doubled since September 2002 and the level of interest-paying debt also rose to 71.7 per cent from 67.9 per cent.

Ms Rickard pointed out that at a typical interest rate of 15 to 20 per cent, the average Australian would pay $800 yearly in interest. To cut their credit card debt, Ms Rickard recommended that Aussies stop adding more debt to their card, pay beyond the minimum repayment, allocate a direct debit to pay for credit card debt each payday and to pay off the card with the highest interest rate first.

"Once you've paid off your credit card, consider only using it for emergencies. Also, consider using a debit card for online purchases instead of a credit card so that you're buying things with money you already have," Ms Rickard said.

Another report by data house Mozo for Financial Review Investor which analysed 200 credit cards showed that the average credit card rate declined by only 0.08 points while the average standard variable mortgage rate went down by 0.45 per cent before the two overnight cash rate cuts at the end of 2011.

The report slammed the big banks for charging the highest interest rates for credit cards which averaged 17.73 per cent. It also commended the Community First Credit Union and the Qantas Staff Credit Union for passing on both recent rate cuts to borrowers.