High interest rates and penalty charges can make it difficult to reduce your balance. If you are carrying a large credit card balance and want to know how best to tackle it, follow these steps from CCPC.
Step 1 – Don’t ignore the problem
When you have money problems, ignoring them in the hope they go away is the most natural thing to do, but if you are going to solve them you need to take action. If you find that you are always running out of money, missing repayments or relying on credit for your day-to-day spending, the first and most important step is to decide to do something about it. Stay positive and remain focused on becoming debt free.
Step 2 – Figure out how long it will take you to clear your debt
Working out how long it will take you to clear your debt and how much you need to pay each month will help you put a plan in place to tackle your debt. The CCPC’s credit card calculator will show you the length of time it will take you to clear your debt if you continue to make the same repayments, and how long it would take if you increase your repayments. For instance, if your credit card balance is €2,500 and you pay off €100 each month at an interest rate of 18% - and stop using your card - it would take you 2 years and 8 months to clear the balance. If you increase your repayments to €150 a month you could clear your balance in 1 year and 8 months (an entire year earlier). Increasing your repayments each month will cost you less in interest and reduce the time it takes you to free yourself of credit card debt.
Step 3 – Can you get a better rate on your credit card?
Have you checked to see if there is a better rate out there for you? Contact your credit card provider to see if they will consider reducing the interest rate on your card. This will help lower your repayments or allow you to pay it off quicker if you keep paying off the same amount. If your current provider is unwilling to reduce the interest rate you should consider switching credit card and transferring your balance to another provider. If you can move your balance to a credit card with 0% interest for a period of time, then every cent you pay will reduce your debt. There are a number of providers currently offering 0% on balance transfers. Check out the CCPC’s credit card comparison tool to see what cards are on offer and what interest rates apply to them.
Step 4- Consider taking out a personal loan
It might be worthwhile taking out a personal loan to pay off your credit card bill. Interest rates on personal loans are generally lower than on credit cards, so you will pay less in interest. If you do this, make sure you stop spending on your credit card or else you will be faced with both the loan repayments and credit card repayments. Take a look at the CCPC personal loans comparison to compare the costs of loans and to work out what your repayments would be. The tool will show you the different interest rates and terms on all the personal loan products currently on offer.
Step 5- Protect your credit rating
Setting up a direct debit for an amount you can afford and choosing a credit card that you can access online is a great way to keep tabs on your spending. It will help you to avoid late payment charges. Late payments can damage your credit history and, depending on your credit card provider, can also incur fees. Most lenders use a credit reference agency, the Irish Credit Bureau (ICB) to check your credit history and see your track record in repaying loans. The ICB builds your credit history using information it gets from your lenders about your loans such as your mortgage, credit cards and other loan agreements. Consider reducing your credit limit to an amount you can manage, preventing you from running into debt you cannot repay. Avoid using your card for cash withdrawals as you will be charged a higher rate of interest.
Step 6 – Are you continually overspending with your credit card?
If you are regularly overspending with your credit card, it may be a better option for you to get a debit card. This way you won’t be able to spend more than you have. Or, you could consider getting a prepaid card. Prepaid cards offer some of the same features as debit and credit cards, but you don’t need a bank account to operate one. They usually carry either the Visa or Mastercard symbol and can be used for purchases wherever a credit card is accepted. You can use them in shops, online or to withdraw money at ATMs.
If you are experiencing difficulty making your repayments not just on your credit card and don’t know what to do, take a look at our debt action plan or you can also get help from the Money Advice and Budgeting Service (MABS), www.mabs.ie
Fergal O’Leary is Director of Communications and Market Insights at the Competition and Consumer Protection Commission (CCPC). The CCPC is responsible for enforcing competition and consumer protection laws across the economy. To help consumers make informed decisions it also gives independent, unbiased information about consumer rights and personal finance products and service through its consumer helpline 1890 432 432 and consumer website www.consumerhelp.ie
