Double trouble in quick time with cards

HOW long does it take for your credit card debt to double?

The answer may be both surprising and scary for the millions of Australians who hold a combined $31.8 billion of credit card debt that’s accruing interest.

Based on current average credit card interest rates above 19 per cent, the debt doubles in just 44 months – less than four years – according to calculations from peer-to-peer lender RateSetter.

The compounding effect of high interest rates is what causes the pain – after 12 months a typical $4200 credit card debt grows to $5076, after two years it’s $6134, and after three years it’s $7413.

RateSetter CEO Daniel Foggo said credit card holders generally were paying “colossal rates of interest that are up to three times greater than lowrate personal loans”.

“Banks know the power of temptation to spend combined with a lack of repayment discipline and high interest rates will usually stop borrowers from clearing their debt,” he said.

Credit card interest rates have edged higher in recent years despite the Reserve Bank of Australia’s official cash rate dropping more than 5 per cent in a decade. Mr Foggo said credit card interest rates did not track the official cash rate, with banks instead focusing on “gimmicks” such as frequent flyer points, interest-free periods and convenience.

Lodex co-CEO Michael Philippou said credit cards were considered by lenders to be much higher risk than mortgages because their debt was not secured.

“Accordingly, lenders price the risk they take in issuing the credit by charging a higher interest amount,” he said.

“Whereas, with a mortgage, the lender has secured the debt against the property generally, therefore if a consumer is unable to pay the lender holds a mortgage over the asset and in dire circumstances could take control of the asset.”

Mr Philippou said there were a number of personal loan players in the Australian market offering loans below 8 per cent.