Monday 26 September 2016

Reducing your debt is on the cards

Sinead Ryan reveals how to quickly cut your credit card balance... and save a fortune while you’re at it

Published 09/01/2016 | 16:00

Apart from having a money lender calling to your door, credit cards remain the single most expensive form of credit around. Bank interest rates have dropped to historically low levels, yet that charged for your 'flexible friend' remains stubbornly inflexible.

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You'd be forgiven for thinking that the very best customers are those who don't pay their bills - and you'd be right!

The ones who pay off, diligently, everything they owe by direct debit monthly, are the 'loss leaders' for banks.

But if you've found yourself with a big bill after all that Christmas and sales shopping, getting your balance down can be a nightmare.

Switching your credit card is one way to start, and there are lots of offers out there - unlike any other financial product, the banks want you to come with a debt… that way they know you are likely to build up a new one quickly.

The way to thwart it is to make a new resolution that once this lot is paid off, you won't build up a new one.

It's easier said than done, but there are a couple of tips:

Cut your card horizontally

You can still use it online but won't be tempted to make an impulse purchase when out shopping.

Never use a credit card for groceries

If you have to, you have much more serious budgeting issues than you might think.

Use a debit card instead. Even in overdraft, it's cheaper.

See every single use of a credit card as a loan

If you had to beg a bank manager for it, would you still want it?

Freeze your card

If you really need to be saved from yourself, wrap your credit card in a plastic sandwich bag, put it in a lunchbox filled with water and freeze it. Three hours of thawing will curb your temptation to use it. Don't cheat by putting it in the microwave - it ruins the magnetic strip!

Switching is not easy, but it is straight-forward. Although the difference in interest charged is marginal, many banks offer 0pc interest on balance transfers and some on introductory purchases, say for the first three or six months.

If you have the discipline not to repeat the bad habits, these are the ones to go for.

Tesco, Bank of Ireland and PTSB all have these offers, with Tesco the best at zero interest on balances for six months, followed by 0pc on new purchases for eight months.

Ulster Bank and AIB have low interest rates (3.9pc and 3.83pc respectively) on balance transfers.

Because it's a financial product, there are more forms to fill out than a simple phone call.

However, many can be done online and you will need to provide things like salary details, previous bills etc.

That means switching takes time, but it will be worth it if you use the six months to aggressively pay down outstanding debt and keep a lid on future purchases.

After that, you'll have saved enough to have made it worthwhile.

Reducing your debt is on the cards

Irish Independent

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