Act now and start paying off your credit card debt
CREDIT cards are the bane of our lives. Once you run up a bill on a card, it is like having financial handcuffs forced on your wrists with the key thrown away. High interest rates and penalty charges make it hard to get the overall amount owed down.
Monthly spending on personal credit cards has dropped to as low as €685m as consumers continue to tighten their belts.
Just three years ago, people were racking up more than €1bn every month on the plastic demons.
And there were 112,000 fewer accounts in operation in October, compared with the same month last year.
Consumers have shaved €207m off their debts on 1.9 million credit cards in the past year. But many people still owe huge amounts.
If you have racked up enormous debts on your credit card, now might be the time to tackle them.
The best advice is to always pay off as much as you can afford.
You would be wise not to miss any repayments and stop using your card again until the balance is paid off, according to Frank Conway of MoneyCoach.ie. Here are some ways to clear the debt.
Get a credit union loan
Join a credit union and sign up for one of their credit card, debt-busting deals. Some credit unions offer credit-card elimination or repayment.
These aim to reduce and eventually clear credit-card debt through a series of loan payments. However, the consumers must agree to halt any activity on their credit card.
The schemes generally work as follows. The member agrees to cease using their credit card and applies for a sufficiently large loan to clear off the credit card in full.
That loan is drawn down in three equal instalments over four months, with the first issued as a cheque paid to the credit-card company.
The member then pays the interest on the credit card for the next two months and presents the two credit-card statements to the credit union, showing that they haven't used it in the meantime. A further cheque for the second payment is then made out to the card firm.
The exercise is repeated for the next two months, at the end of which the final cheque is issued to the credit-card company, which will clear the remaining balance.
Get a bank loan
If you are heavily indebted, it is possible to have the interest and penalty charges frozen on your card. Credit-card companies don't admit this, but if you are heavily in arrears they will agree to freeze the interest and penalties.
Once you get the credit-card company to stop applying the interest and penalty charges, try to get a personal loan from your bank or credit union to help pay off the debt.
Rates start at around 11pc from the banks, with credits unions loans anywhere from 7pc to 12pc, depending on the credit union.
You might also be wise to cut up the card.
Check out itsyourmoney.ie for a list of interest rates charged by banks for loans in the Cost Comparison section.
Get a mortgage holiday
Another option is to get a mortgage-repayment holiday and use the cash that is freed up to clear the credit-card debt.
This option is recommended by some commercial debt advisers, but it comes with a massive health warning as your accommodation should be your priority.
However, it has emerged that some consumers are paying off credit card and other debts, but not their mortgage, in the mistaken belief they will not lose their home. These people believe they are entitled to a payment holiday on their mortgage, according to financial advisers.
There is also a tendency to repay credit-card debt quicker than a mortgage because card providers tend to be more aggressive at chasing payments. Many consumers believe the statutory code of conduct on mortgage arrears mean they will not lose their home. This is wrong.
So, if you do opt to stop paying your mortgage for a while to clear debt, make sure it is with the agreement of your lender. Often, banks where you have both your mortgage and credit card may allow this.
Sell OFF your second car
If you are lucky enough to have a second car, buy-to-let property or holiday home, it might be wise to sell up if you are heavily in debt. We are assuming here you do not need the second car for work.
Use your savings to clear debts
It is amazing the number of people who have debts and savings at the same time.
If you are saving, it makes little sense to have €10,000 sitting in a bank account earning, at most, 4pc if you are struggling with credit-card debt where the interest rate is 21pc. Get an immediate return of 17pc by paying off debt with your savings.
Irish Independent Supplement