It’s a debt sentence

Low repayment options on credit cards a trap for consumers

CREDIT card minimum repayment amounts need to be increased and bills need to be made clearer to help customers pay back their debts faster, experts say.

There are hundreds of credit cards available on the market but dozens still have the minimum repayments amount set at the lowest possible level of just two per cent.

Latest Reserve Bank of Australia figures show Australians owe a massive $43.7 billion on personal credit cards and $27.1 billion is accruing interest, often at rates of about 20 per cent.

Consumer group Choice’s spokeswoman Erin Turner said there needed to be clearer information to customers to help them pay off debt.

“Credit cards can trap people into a cycle of high cost debt,” she said. “It’s essential that companies communicate to customers in a crystal clear way. It’s often not clear to people what the impact will be if they only pay the minimum amount.”

Analysis by financial comparison website Mozo showed most lenders only required customers to pay back between two or 3 per cent of their total debt.

Lender ING requires their credit card customers to repay a minimum amount of 5 per cent of their debt owing each month.

Mozo’s spokeswoman Kirsty Lamont said minimum repayments could end up “being a lifelong death sentence” and minimum repayments should be increased.

“Setting a minimum repayment at 2 per cent means it’s very difficult to pay off that card in a reasonable time frame,” she said. “As a result we are seeing thousands of Australian credit card customers burdened with credit card death sentences that can stretch for decades.”

Australian Banking Association CEO Anna Bligh said all banks must “clearly state a minimum repayment warning so customers know how long it will take to pay off their credit card”.