Friday 20 October 2017

Charlie Weston: The smart way of dealing with the curse of credit card debt

Paying the minimum means you will end up paying more in interest and it will take ages to reduce what you owe on your card (Stock picture)
Paying the minimum means you will end up paying more in interest and it will take ages to reduce what you owe on your card (Stock picture)
Charlie Weston

Charlie Weston

Credit cards are a curse. They are incredibly convenient, give you access to funds when you may not have any, and facilitate online shopping, where you can get some great bargains.

But the positives can often outweigh the negatives. A credit card is a hellishly expensive tool. Only moneylenders charge more interest, and only people who are desperate turn to them.

But, despite the cost, for many of us credit cards have become an indispensable tool for living. This is especially the case if you are disciplined enough to pay down your balance regularly, by going into your online bank account and transferring funds from your current account, or setting up a direct debit for making payments when they fall due each month.

Card providers play on our weaknesses by setting out "minimum payment" amounts with each balance statement. This is always set at a low and manageable figure. But it is nearly impossible to get on top of the card debt if you only pay the minimum.

Paying the minimum means you will end up paying more in interest and it will take ages to reduce what you owe on your card. If you owe €1,000 on a card with an interest of 17pc, it will take two years to clear it if your repay just €50 a month.

The other major problem with credit cards is that they come with a range of other fees and charges, apart from the high interest rate imposed when you make purchases on your card. These include late payment fees, a charge for going over your credit limit, and foreign exchange fees.

One option to deal with card debt is to switch to another card provider. These will entice you with low, or even zero, interest-rate deals for a period.

The idea is that you transfer the balance you owe on your existing credit card to a new one. You must have an unblemished credit history for them to take you on and it is worth noting that you are likely to be hit with a high interest rate on purchases once the introductory offer comes to an end.

Another option is to ditch your credit card. Stop using it and pay what you owe by taking out a credit union loan.

Another alternative is a debit card, which has much of the functionality of a credit card. With a debit card, you can only spend on it if you have funds in the bank. If you spend more than you have in your current account, you will incur expensive overdraft fees.

Consider also a prepaid credit card, such as Payzone Money or 3Money. These are useful online, but the fee for loading them up is often high.

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