Tackling your credit card debt
Collectively we owe €2.9bn on some 2.17 million credit cards -- it's a debt mountain that is only getting worse. Charlie Weston shows how to play your cards right and tackle the toxic plastic
CREDIT card debt is a massive problem and it is getting worse. Here is a sample of texts sent in to TodayFM's the 'Last Word' and 'The Sunday Business Show' when yours truly was on recently talking about credit cards.
"I owe €17,000 on my credit card," one listener texted in.
Another commented: "My partner owes over €9,000 on her Halifax credit card. She has not used it for almost a year. She is finding it impossible to meet the payments on time."
Outstanding credit card balances of €4,000 are not uncommon judging by the emails received by this reporter at this newspaper. Indeed, debt advisers talk of regularly coming across cases where people owe as much as €20,000 on their card. Collectively we owe €2.9bn on some 2.17 million personal credit cards.
The average credit card debt is €1,200. But the Money Advice and Budgeting Service (MABS) reports its clients owing €8,000 on average on credit cards.
So what can people who are heavily in debt on their credit cards do?
This first thing to avoid, if at all possible, is paying the minimum amount.
Households in financial difficulties have been found to be three times more likely to be only paying the minimum (which can be as low as 1pc with MBNA) on their card each month, according to the Law Reform Commission.
But it will take 20 years to clear a €8,000 debt if you pay just 2.5pc of the outstanding balance every month. In that time you will have paid €6,000 in interest alone.
Cut up the card
People with big debts on their card or cards would be well advised to take out a scissors and cut it up.
That is the only way you will not make the situation worse by running up more debt when you are already paying through the nose in interest payments.
Authorised adviser John Geraghty of LA Brokers commented: "If you can't tackle the card debt and clear the outstanding balance it is time to get the scissors out. There is no point in having interest accruing all the time when you are only paying the minimum."
Use a debit card, such as Laser or Visa debit instead. Some other options for those who dispense with their credit card are discussed below.
But cutting up the toxic plastic will not be an option if you travel abroad a lot for work.
Nor will it be an option if you want to hire a car at home or if you holiday outside the country.
Paul Redmond of the Car Rental Council of Ireland has confirmed to 'Your Money' that it is virtually impossible to hire a car here or abroad without a credit card.
For security reasons, in case you damage the car, hire companies will insist on swiping your card, he says. The other issue is that your debit card may not work on the continent so you may need the option of having a credit card on standby.
The solution for those with big debts on their cards, but who feel they will need a card for their holiday, is to cut up the card, but do not cancel the credit card account.
This way you do not add to the debts on the card, because you can't use it, but you will be able to request that a new card is issued to you when you need it to go on holiday.
Alternatively, put the card on ice in the freezer until you need it to go on holiday.
Clear the debt
Get a personal loan from a bank, if you can, to clear the debt on the card. Bank and loan rates average at around 11pc.
Even better, get a credit union loan. The average rates are around 7pc to 8pc. A number of credit unions throughout the country now offer credit card elimination or repayment initiatives, according chairperson of the Credit Union Managers Association Selina Gilleece.
These aim is to reduce, and eventually clear, credit card debt through a series of personal loan payments. The member would be told not to use the card until the debt is cleared. n firstname.lastname@example.org