It's possible you clear your credit card balance every month – and think you're pretty clever.
Of the $53 billion sitting on plastic in December, $32 billion had been rolled over from the previous month. That implies much of it could still be attracting astronomical average interest of 17.3% (compared with the official cash rate of 1.5% – a topic for a whole other column).
But let's assume you're too smart for this … that you fall into a second category – the model money citizens who perhaps use a card purely for points or because it's potentially a month of free money (which you might even deftly deploy elsewhere, like on your mortgage).
Well, on guard! Card companies have instituted and even invented clawbacks with you especially in mind.
Clawback 1: Annual fees
More card bells and whistles in general have come at a cost: far higher annual fees. The average fee has spiked 15% in five years, to $118, says comparison website mozo.com.au.
But cards of the type clever clogs might use, rewards cards, come at a hefty premium: $177 a year.
Naturally, you have to fork out for this additional to spending. And roll it up with any debt and it gets more expensive still.
Clawback 2: The balance transfer fee
There's been an explosion in the number of cards charging no interest on existing balances that you transfer to them – from 24 five years ago to 112 today, says Mozo. And the 0% period is now as long as 24 months.
But before your opportunistic ears prick up, card companies have set a new trap.
A few years back, the government changed legislation such that these products became far less lucrative to run – requiring repayments to go to that portion of your debt that incurs the highest interest first (previously you had to clear your whole interest-free bit before you could get to the new, interest-raking debt).
So they've invented a sneaky new fee: a balance transfer fee. At up to 3% of your transferred balance, and levied by 22 of the cards on the market, it can wipe out a chunk of your interest saving. Avoid these deals entirely. There's another compensation ploy too …
Clawback 3: Revert rates
If you actually use a balance transfer card during the 0% interest period, the rate you'll pay will be stratospheric – so it's still a trap to make new spending on such a card. The average on Mozo's database is 17.8%. But you're card canny and stick it in a draw because you know the trap is to still tap.
Even you could be caught, though, if you still have debt left at the end of the interest-free period – by an interest rate that is higher still – 19.2%. This is the sour tail of these sweet deals … unless you cleverly use them to clear your card. They give you a beautiful debt deadline.
Clawback 4: Foreign transaction fees
You'll have heard about foreign transaction fees – I hope – and either have an entirely separate card just for travel or the one card that is foreign transaction fee-free.
But look sharp: you no longer have to be overseas to be hit with a foreign transaction fee of up to 3.5% … online merchants, even local ones, may use an offshore bank. So be sure to avoid the extra cost where applicable online, with a card that charges nothing for currency conversion.
Clawback 5: Credit card surcharges
While we're talking paying extra for goods, there's been an unintended consequence of the September 2016 ban on large merchants charging a flat surcharge for using cards. The idea was to link the charge more closely to the actual merchant cost of using a card.
For example, airlines were notorious offenders, and Qantas has scrapped flat fees of $7 per passenger for domestic flights and $30 for international flights; it is now charging a percentage of the fare. Of course, this will benefit customers flying on short haul domestic flights, but will be more expensive for those travelling on more expensive tickets.
However, the rule changes have led some merchants to start levying surcharges, where previously they did not, to recoup costs. Be vigilant about where you pay with a card and perhaps use cash or another means.
A final word: The minimum repayment
This one is not a straight impost to you but it's a big part of the reason for all of the above. Or at least the forced disclosure of its impact is, creating more credit savvy Aussies.
Although Mozo says minimum repayments have remained largely static in the past five years, at the higher of $22 or 2.4%, remember that's on debt at an average 17.3% interest rate and $118 annual fee.
For my obsessive-points-collector self (on a card with a reasonable annual fee and generous earn rate), this calculation appeared on the bottom of last month's statement, as required since 2010: If you pay only the minimum, it will cost you $39,027 and take you 82 years to clear your debt.
It ain't going to happen. But now, more than ever, smart credit card use extends beyond simply clearing your debt.
This article was originally published by the Sydney Morning Herald on 27 February 2017. It represents the views of the author only and does not necessarily reflect the views of AMP.
Paying off debt
Our short online learning module gives you tips around how to control debt and repay it, and what to do if you need help.
Chances are you either have a side gig (a way to make money on the side of your usual job), want to have one, or you benefit from someone else’s.