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Dan White: Cut up your credit cards to beat debts nightmare

Dan answers your financial questions

I NEED some advice! I have a credit card and an overdraft that I'm desperate to get rid of. The interest rate on my credit card is 16.9pc. I owe €4,500 on the card and I have a €2,000 overdraft.

I also have a car loan for €22,000 from some years back. I'm one of the lucky ones with a steady job and a modest income. I'm just a chronic over-spender.

Is it worth getting rid of the credit card and overdraft facilities and trying to consolidate my loans into one? I have a very understanding credit union who I know would do their best but I don't know if it's the right move to do it or leave well enough alone.

-- VICTORIA

WITH debts potentially as high as €28,500, Victoria needs to sort out her finances pronto.

In practice, she probably doesn't owe that much as the car loan is, in her words "from some years back". I'm guessing that a significant chunk of the €22,000 originally borrowed to pay for the car has already been repaid. Assuming that Victoria borrowed €22,000 over five years at an annual interest rate of 8pc three years ago, then she has already repaid over €12,000 of the amount borrowed.

If, and admittedly it's a big "if", this is the case then Victoria's total borrowings are "only" about €16,500.

That's the good news. The bad news is that with her car already several years old and the interest rates on car loans generally being relatively low, Victoria really has no choice but to stick with her monthly repayments on this loan. It makes no sense to reschedule a car loan and find yourself still having to make repayments years after the car has been consigned to the scrapheap.

It's a different story with the credit card debt and the overdraft. These are expensive loans and Victoria needs to sort them now. If she can persuade her credit union give her a loan then she should borrow the money she needs to pay off the credit card and overdraft. She should then take the scissors to her credit card.

However, sorting out her existing debts is only the first step that Victoria needs to take. As she admits in her letter she is a bit of spendthrift. That has got to stop. She has to set aside a fixed amount for spending every month. Once that money is gone, it's gone and no more spending until the next pay cheque arrives.

Unless Victoria sets her herself a strict spending budget and sticks to it, she will find herself in exactly the same position again in a few years time.

AS someone who is already struggling with a large mortgage I read with dismay recently that the Government is planning to introduce a property tax in next December's budget. How much is such a property tax likely to be and is there any way that I can avoid paying it?

-- DEREK

LAST week the Government refused to deny media reports that it was planning to introduce a residential property tax in the Budget.

In what looked like a carefully orchestrated leak designed to gauge possible public reaction to the imposition of a property tax, we were led to believe that the tax would start at between €188 and €225 for a house worth €150,000, rising to €3,000 for a house worth over €1.5m.

The new tax will be self-assessed, which means that it is the taxpayer who is responsible for valuing his or her property. While this allows the homeowner to undervalue the property, the downside is that any such deliberate under-valuation will come to light when the property is sold leaving him or her liable to any unpaid tax and interest.


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