New Zealand's credit card interest bill increases

Wednesday, 17 January 2018

Rewards schemes are often only good value for big spenders with no outstanding debt.

New Zealand's credit card habits cost $700 million in interest last year.

Research firm Canstar has released data that shows credit card spending has increased by almost half since the global financial crisis (GFC). It's expected that the country will have put $43 billion on cards by the end of this year.

New Zealanders do not pay back 63 per cent of their credit card balances in full each month.

But we only pay off about a third of that in full each month, leaving the rest to attract interest at a significant rate.

Credit card users in this country had an outstanding interest-bearing balance of $716m between November 2016 and October 2017, compared to $710m in the 12 months before.

The average interest rate charged dropped slightly over the period, from 18.1 per cent to 17.8 per cent, taking the total interest bill to $700m.

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'In the post-GFC years we've increased our appetite for spending, but unfortunately, not for paying it back. Typically, we've always carried over around 63 per cent of our balances, the difference is in 2009 that was 63 per cent of $28.7b, a lot less than the spending levels we are seeing today,' said Canstar general manager Jose George.

'In recent years a number of credit card providers have introduced more low rate/low fee options to consumers, but visits to our website suggest that credit cards offering rewards, and often higher rates of interest, remain the most popular option for Kiwis.'

Canstar research suggests that rewards cards can start to offer value-add for annual spend of at least $8000 per annum and for consumers who are disciplined at paying off their balance in full.

The annual fees, and the usually higher rates of interest the cards charged often made them unsuitable for people who did not do so.

'Credit cards can be beneficial financial tools if used well, but discipline around spending as well as paying off outstanding balances is paramount in order to steer clear of debt,' George said.

'If you're already carrying debt on an existing card, a balance transfer deal offering a lower rate of interest may be worth investigating. Another option could be to consolidate debt with a personal loan or a credit facility offering a lower rate of interest.'

Canstar pointed to the Visa Light card as a good low-fee and low-rate option. Kiwibank's MasterCard Zero was another low-fee option that was good value, and the Co-Operative Bank's Fair Rate card was good for those seeking a low rate.

The Onecard Visa and Warehouse Purple Visa were the best option for rewards for customers who spent $12,000 a year on their cards.