Dumb Ways to Pay: Australia’s Highest-Rate Credit Cards
“Compound interest is the 8th wonder of the world,” said Albert Einstein. “He who understands it, earns it; he who doesn't, pays it.”
Let’s say you put $1000 on a Credit Card with a 20% interest rate and don’t pay it off for 10 years. In the end, you’ll pay the bank $2168! The interest alone will be more than the initial amount you borrowed.
Add to that the merchant fee of up to 2% each time you buy something, and the annual fee on most cards - which can be anywhere up to $700!
You don’t have to be Einstein to see that’s a dumb way to pay for something.
Australians are finally sending the banks a message: most high-interest Credit Cards are for mugs.
We’re chopping up credit cards and closing accounts at a rate of about 160 an hour, according to a report last week from Illion.
When a purchase is too big or too urgent for you to pay upfront, it’s no longer necessary to pay compound interest.
Young people - and increasingly people of all ages - see Buy Now Pay Later as a far superior option and the banks are nervous.
This week we went looking for some of the highest-interest credit cards on the market, in order to highlight what a dud deal they can be if your debt spirals out of control.
HIGH-INTEREST CREDIT CARDS
At first glance, these new cards look a bit like a Buy Now Pay Later plan but they have a compound interest sting in the tail… Offers 9, 12 or 15mth interest-free payment plans when you spend over $250 but the rate then rockets to 25.99% p.a. If you owe anything after a promo period ends. Also charges you 23.99% p.a. interest if you miss a payment. “If you fail to pay a fixed monthly instalment, interest (calculated at the standard Card Purchase Rate [of 23.99%p.a.]) is payable on that outstanding amount.” Do not be fooled. The worst case scenario if you miss payments on this card is worse than BNPL because it charges high interest rates rather than flat late fees.
Latitude used to be called GE Money and has re-branded with glossy ads featuring Alec Baldwin. This card offers 6 months interest-free on purchases over $250 but there’s a $30 late fee if you miss a payment, a $99 annual fee, and a sky-high rate of 24.99% for everyday purchases and for any balance remaining after that 6 months promo period ends. So the worst case scenario if you don’t pay on time is also very bad indeed.
21.49%p.a. + $700 annual fee!
If you’re spending enough on this card to rack up reward points that are worth more than the $700 annual fee, then good luck to you! But most of us will never do that, so this card’s a trap for the average non-billionaire. The combo of the high interest rate and the annual fee would add up to a lot of debt very fast if you didn’t pay it off every month. For example, spend $1000 on this card and if you only pay the minimum monthly repayment, after 12 months you’ll end up paying $932 in interest and fees and you’ll still owe $972 on the card.
20.74% p.a. + $395 annual fee
Amex’s highest rate is slightly higher than the Big 4 banks, and so is the annual fee at $395. Yes, there are all sorts of reward points and other bells and whistles attached like $400 travel credit (not much use to you this year!), but spend $1000 on this card and if you only pay the minimum monthly repayment, after 12 months you’ll end up paying $619 in interest and fees and you’ll still owe $964 on the card.
20.49% p.a. + $250 annual fee
Westpac currently has the highest interest rate of the Big 4 on its Altitude Black rewards card at 20.49% p.a. Spend $1000 on this card and if you only pay the minimum monthly repayment, after 12 months you’ll end up paying $471 in interest and fees and you’ll still owe $961 on the card.
20.25%p.a. + $375 annual fee
ANZ’s rewards card charges slightly less than Westpac but its annual fee is bigger at $375 - more than a dollar a day. Spend $1000 on this card and if you only pay the minimum monthly repayment, after 12 months you’ll end up paying $594 in interest and fees and you’ll still owe $959 on the card.
Any information is general advice, it does not take into account your individual circumstances, objectives, financial situation or needs.