Be a card sharp: reducing your credit card debt
If your 'flexible friend' has turned into your worst enemy, don't panic. By exercising some self-control and making financial changes, you can reduce your credit card debt, writes Charlie Weston
Published 20/05/2010 | 05:00
THOSE marketing people would like it to be known as your "flexible friend", but the credit card in your pocket or purse is probably your worst enemy.
In fact, so bad are credit cards that they could have been invented by the devil.
With interest rates as high as 18pc and fees and charges so steep they are sinful, Lucifer himself would struggle to come up with a financial product that is more damnable.
Over-using a credit card is one sure way to burn your cash -- you might as well throw €50 notes on the fires of hell.
For those people who get heavily into debt on credit cards, the situation is akin to being condemned to eternal punishment in some sort of money hell.
Plenty of people have been using credit cards in the past few years to support lifestyle spending -- they borrow money to support a standard of living they cannot afford.
Now credit card companies are getting nasty if they cannot get paid.
Here are 12 ways to deal with your credit card hell.
Kill the card debt
There are a number of methods you can apply to reducing debt, depending on the type of individual you are, according to financial adviser Bob Quinn of myrecession.ie
The debt avalanche approach is the most cost-effective method and involves paying off the most expensive debts first. This system is for more analytical people as the more expensive debts may not be cleared quickly, therefore no little victories to tout along the way.
Approach this goal with a friend in a similar situation so you keep one another motivated, Mr Quinn advises.
The debt snowflake is simply an approach where you look at saving a few euro here and there. Forgo your skinny cappuccino today and tomorrow and put that money toward reducing your overdraft.
The snowball approach involves putting your debts in order by size and pay off the smallest first.
This is a great way to get motivated as you see many victories in a short space of time, he added.
"It's important to organise your debts in such a way that you free up cash to pay down the smaller debts. This might mean paying the minimum on your credit card in favour of clearing a small credit union loan or vice versa," he said.
Stop using your card
The best advice is to cut up the card and cancel your card account.
Alternatively, use your debit card (such as Laser) or a disposable card such as 3V.
However, it can be difficult to stop using a credit card completely, especially if you rely on it for day-to-day spending.
But if you feel you need a card for emergencies or when abroad, then try leaving the card in a safe place at home if you could be tempted to use it when out shopping.
Don't pay the minimum
Pay off more than the minimum payment every month, if you can. Minimum payments vary from card to card, but usually the percentage varies from 1pc to 5pc.
If you buy a new top-of-the-range laptop for €1,500 but only pay the minimum, it will take 17 years to clear the balance. Over that time you will have paid a whopping €1,300 in interest alone.
Think about switching to a credit card that has a low rate of interest, or no interest for a period. As a result you will pay less interest while you are paying off what you owe.
However, this is easier said than done as six out of 10 credit card applications are refused.
If you can make a successful switch consider the AIB Click card which charges 9.5pc on purchases or the Bank of Ireland Clear card which charges the same interest rate.
The EBS Member card has a deal where if you manage to move your outstanding balance to this card you will be charged no interest on the balance you have moved for 10 months. But you will be charged for new purchases during this period.
Make sure you pay off your debt before the end of the interest free or low-interest period.
And make sure you cancel your old card, otherwise you may end up owing money and paying stamp duty on the two cards.
Get debt written off
It is possible to get your card provider to reduce the interest rate on your card, or to stop applying interest and fees on the account altogether.
You will need to make a good case, backed up by an income and expenditure statement.
You need to get the card provider to accept that you cannot pay the full amount and to write off some of the debt, with the rest paid off over a number of years.