With summer round the corner, thoughts of the two week vacation, parties, barbeques, open air concerts and fun are the order of the day.
For many people, using a credit card to its limit or borrowing from a credit union or bank is now the norm for most families as we continue to be challenged by the rising living costs, interest rates and inflation.
Many years ago, marketing campaigns urged us all to use our flexible friend – the credit card – when shopping. That friend has, for some, can very easily get out of control and there will be those who need to smell the roses and drink a dose of reality.
Here are five tips from John Lowe of MoneyDoctors.ie to put you back on track in particular with your credit card if it’s a little out of order:
1. Don’t put your head in the sand when your monthly bill comes in
We spend over €12 billion a year just on credit cards with the average credit card debt for every Irish adult €1,330 each.
The average debt for each person in Ireland last year was €44,000 – €226 billion last year in total.
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 9.13% APR – online only.
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 – taking cash from your card will attract immediate interest and charges).
Longest free credit period? Some store cards will allow you 56 days to pay your bill (but then 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 six months (Permanent TSB give the first six months at 0% while Bank of Ireland offer seven months at 0%. Best of all is An Post Money who offer 12 months at 0% on balance transfers). This at least buys time while you consider how you are going to dispose of or pay back the debt.
Ideally, you could divide the debt by 7 or 12 equal installments so that at the end of the period, your credit card is clear. Paying off last year’s summer holiday via your credit card doesn’t make sense.
4. Look at personal loan options (unsecured loans)
The best loan rates you will find are with your friendly local credit union – as low as 6.5%. They’re just dying to lend as they have surplus members’ funds. Remember:
You MUST either be living locally or working locally to the credit union.
Most credit unions 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, e.g. 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 requirement to only 2.5%.
Bank Of Ireland up to €10,000 charge 8.25% and AIB Bank also between 8.65% and 8.95% (their overdraft rate is 11.85%) are more expensive than credit unions generally. An Post Money offer loans from €5,000 to €75,000 with terms from one year to 10 years at 7.5% interest rate. With Permanent TSB their loans ranging from €1,500 to €6,999 with a choice of terms up to five years and 10 years carry an interest rate of 13.4% (APR 14.3%).
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 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 even with the recent increases are the cheapest of all loans – if borrowing 80% or even less of the value of your home, you will attract cheap interest rates. Some of the fixed rates are still attractive, 3.9% fixed for four years for example.
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 over the last 15 years). Very few lenders are doing this and only in exceptional circumstances. Releasing funds to pay off debts, as I said, should never be considered especially if it is only for lifestyle purposes.