Wriggle out of the debt trap
There are options if a flimsy piece of plastic has you in the red, writes Charlie Weston
CONSUMERS are slashing credit card spending as they tighten their belts in anticipation of another tough year. But we still owe billions of euro on plastic.
Over the past few months consumers have been consistently paying off more than they are spending on credit, but up to now the card payments have been eaten up by interest charges and other fees.
But the latest data show card-holders paid down almost €860m last November on some 2.17 million personal cards.
It was in the ninth month of 2009 that consumers paid off more on their cards than they spent using them, the Central Bank figures show.
Consumers spent €811m on credit cards, taking the overall amount owed on all personal and business credit cards to €2.9bn.
This meant the overall amount owed on cards was down €24m from the previous month, and the outstanding debt figure was lower than the amount owed on plastic in the same month of 2008.
The figures exclude payments on debit cards and store cards, according to the Central Bank.
Here are some tips to help you get rid of a credit card debt and/or better use your plastic.
Cut up the card
For those in difficulties with their credit cards, the best advice is to cut them up and start living within their means.
If you don't want to ditch your card in case you might need it in an emergency, then the next best option is to use it as a charge card, according to 'The Money Doctor Finance Annual 2010', by John Lowe.
This means paying in full every month before your 30-plus free credit days are up.
But if you depend on your credit card to get you from one pay period to the next, then another option is to switch to a card with a lower interest rate, or one that offers a 0pc introductory rate.
Take the AIB Click card. It has an interest rate of 8.5pc on purchases, but you need to watch out as it has a rate of 23.4pc for cash withdrawals.
Also offering a low rate is the Bank of Ireland Clear card with a rate of 9.5pc on purchases, but 19.9pc on cash withdrawals.
Only transfer to a 0pc introductory offer if you plan to pay off the entire debt before the introductory period is up.
Bank of Ireland offers a 0pc deal on balance transfers for six months on its Clear card. This means new purchases will be charged at 9.5pc.
The same bank's 2-in-1 card offers either a 0pc balance transfer deal or a 0pc on new purchases for six months.
If you cannot get a new card, you could take out a short-term, low-interest loan from a bank or credit union to pay off the card.
Pay what you can
If you have gone on a credit card spending splurge, then the best advice is to pay off as much as you can, as quickly as you can.
The Financial Regulator advises those heavily in debt on their cards to stop using them until the debt is cleared.
You should avoid the "minimum payment trap", where you only make small repayments, as your debt will grow.
For example, if you owe €4,000 on your credit card and only make a minimum repayment of 2pc each month, after 12 months you could still owe as much as €3,500.
Snowball your debt
One of the most sensible pieces of advice on dealing with debt is to tackle your most expensive debt first.
This is known as snowballing your debt.
With interest rates as high as 17.9pc on some cards from mainstream financial institutions, it's easy to see why this makes sense.
So if you are paying 18pc interest on your credit card balance, you fire all your spare money at that debt. On all your other debts, pay only the minimum payment.
Get a loan
One other option is to take out a bank or credit union loan.
Ask for a break
Also, ask your provider to consider reducing the interest rate on your card -- this will reduce the debt each month.
Never withdraw cash
Try not to use your card to withdraw cash, as interest is usually charged immediately and the interest charged for withdrawing cash is often higher than that for buying things with your card.
There is no interest-free period when you use your card to withdraw cash, whether or not you clear your balance in full at the end of the month.
You will also probably incur a cash withdrawal free.
Do not exceed
Keep a close eye on what you owe on a card and make sure you do not go over your spending limit.
The danger here is that going over your limit will usually mean the payment is blocked, and you will also have to pay a penalty fee of up to €12.70.
If you want to extend your credit limit, talk to your provider in advance and ask them to authorise it.
You can get help from the Money Advice and Budgeting Service (MABS).
See www.mabs.ie for more.