As we enter into the last few days of 2018, some of us will have maximized the credit limits on our credit cards, some with little thought of how we are going to address that debt in the New Year. The thought of that debt for some is a dread too far.
Many years ago, marketing campaigns urged us all to use our flexible friend - the credit card - when shopping. That friend has, for some, got out of control and some of us need to smell the roses and take a dose of reality.
As actor Christopher Parker once said, "Procrastination is like a credit card – it’s a lot of fun until you get the bill." Here are 5 tips from John Lowe the Money Doctor to put you back on track in 2019 with your credit card:
1. Don't put your head in the sand when your monthly bill comes in
- We spend over €2.2b at Christmas time alone on credit cards.
- Half of us only pay the minimum requirement - at some of the rates the credit card companies charge, it would take 20 years to pay off the credit card debt if only making minimum payments.
- Best card deal? AIB Bank visa click card at 13.8% APR – online only.
- Worst outside of departmental stores? – Ulster Classic card at 22.7% and, if taking cash, 26%.
2. Pay off your credit card bill in full if you can
- There are so many options to pay off your bill rather than leave debt at expensive interest rates
- You are still availing of free credit (from the time you buy something to the time you receive the credit card bill and are given so many days to pay)
- Longest free credit period? Some store cards will allow you 56 days to pay your bill. However, if you don't, you are charged considerably more.
3. If you cannot pay off the card debt immediately, transfer your card balance to another credit card company offering 0%
- Avail of the 0% rate for up to 6 months (KBC Bank and Permanent TSB give the first 6 months at 0%, while Bank of Ireland offers 7 months at 0%). This at least buys time while you consider how you are going to dispose of the debt.
- Ideally, you could divide the debt by 6 or 7 equal instalments so that at the end of the period, your credit card is clear. Paying off last year’s summer holiday via your credit card does not make sense.
4. Look at personal loan options (unsecured loans)
- The best loan rates you will find are with your friendly local credit union – which can be as low as 6.5%.
- You MUST either be living locally or working locally to the credit union to avail of these services.
- Most require that you are a member for at least a month before applying for the loan.
- Normally for the first loan, you would have to lodge up to 25% of the amount you wish to borrow. For example, if you want €4,000, you would have to lodge €1,000 into an account. Some of the credit unions (they are all independent) have reduced this to 2.5%.
- Bank Of Ireland at 12.8% and AIB Bank also at 12.38% (loans up to €9,999 – their overdraft rate is 11.85%) are expensive.
5. If your loan repayments exceed your income, consolidate if you can and if you are let, but do it just once
- Income is king, and you should protect this at all times – do up a budget and ensure you live within your means, i.e. your income exceeds your expenditure.
- You may have equity in your home or property that you could release to pay off all your debts if you have the income and the lender agrees.
- Remember, home loan interest rates are the cheapest of all loans: if borrowing less than 60% of the value of your home, you will attract cheap interest rates. Some of the fixed rates are extremely attractive such as 2.5% fixed for 5 years.
- You may also be tempted to take out additional monies for investment (remember if you want growth you must take a little risk but perhaps using the home could be considered a bad idea in light of what has happened with over the last 10 years). Very few lenders are doing this and only in exceptional circumstances. Releasing funds to pay off debts, as I said, should never be done, especially if it is only for lifestyle purposes.
Happy New Year to you all and hope your finances sparkle in 2019.