Business Personal Finance

Tuesday 30 September 2014

How can I reduce my credit-card debt before applying for a mortgage?

Aine Carroll

Published 01/11/2013 | 01:00

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I had been ignoring my credit-card balance for a while and just paying the minimum amount each month. I've ended up owing €3,000 and am very worried now. I'd like to start saving for a home in a few years but realise I have to clear my debts first. I don't know where to start – can you help? Shane

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Tackling debt is never easy but you've taken the first step in figuring out what you owe and setting a target. The next step is coming up with a plan. You are right to think about reducing your debt before applying for a mortgage.

As you've seen, using credit cards for medium or long-term borrowing is very easy to do but also very expensive – the interest rate charged on credit card balances can range from 13pc to 23pc. While it is tempting to simply repay the minimum amount each month, by doing so you are being charged a high rate of interest on the outstanding balance and increasing the amount of time it will take you to clear the debt.

There are a number of things you can do to reduce your balance. A couple of credit-card providers offer 0pc interest on balance transfers for a period of time so it might be worth checking if you can switch to a card with a zero or lower rate of interest.

If you choose this option, then aim to pay off as much as you can before the low rate offer runs out and try to avoid using the card as it will take longer to clear. If you cannot switch, consider getting a personal loan either from a bank or a credit union to pay off your balance, however it is essential that any loan used in this way has a manageable repayment amount and term.

Consider cancelling your credit card so that you aren't adding to the balance.

If you require a credit card for essential purchases, such as flights online, leave it in a secure place rather than on your person, and use it only on those occasions.

Ensure you have the funds to meet the charge in your current account and transfer them directly onto the card to meet the payment.

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