Card Debt Hits $41bn As Banks Lift Rates

Card Debt Hits $41bn As Banks Lift Rates

Sun Herald

Sunday September 23, 2007

By Frank Walker

CREDIT card debt has reached record levels with more Australians using cards to meet their mortgage payments.

And in the past month, several banks have pushed up card interest rates way beyond official Reserve Bank increases.

Interest rates on some credit cards went up by as much as one percentage point when the Reserve Bank increased official rates by only 0.25 percentage points.

Australians owe a record $41.02 billion on credit cards. For the first time the average debt on a credit card account has passed $3000.

A near record total of $1.08 billion was borrowed on cash advances in July. A record $16.4 billion purchases were put on credit cards, an average of $1197 per card.

Interest was levied on a record $30 billion in unpaid credit card bills. Credit card debt has increased by $10 billion in a little over two years.

Despite the increasing level of credit card debt, banks are enticing people to spend even more on credit. The total amount of available credit pushed out to a record $110 billion in July as banks increased credit card limits, now an average of $8000 per account.

Financial experts are predicting the average credit card interest rate of 16 per cent will increase by two to three percentage points over the next 18 months. That would push low-interest-rate cards up to 13 per cent and top rates to 22 per cent.

"People are being sucked in by low interest credit cards and then being squeezed dry by the banks," Credit Line financial counsellor Wendy Luckett said.

"I have been doing this for 17 years and it is the worst I have ever seen."

She said banks were less willing to negotiate with people to get out of overwhelming credit card debt. "But they send them invitations to increase their credit limit and all they have to do is sign at the bottom," Ms Luckett said.

A survey last week by financial services groups JP Morgan and Fujitsu Consulting found 600,000 households - 8 per cent of the mortgage market - were likely to have trouble paying mortgages by the end of this year.