herald

Saturday 25 October 2014

Kick the New Year into shape by getting your credit card debt in order

FEELING stuffed and bloated after the Christmas festivities? Well you may be but your bank balance probably isn't.

The average spend at this time of year is anything from €500 to €900, depending on who you listen to.

I can hear some of you saying, "Is that all?" as you nervously await the arrival of your credit card bill. No cheery festive postman in January, that's for sure.

Well, if you've racked up debts you'll want to get them under control as quickly as possible.

Many people take months to do this and long after the kids' toys have been discarded and the batteries have run out, the interest on your bill is merrily racking up by the day.

Yes, Christmas is the gift that keeps on giving -- to banks.

Just a week before the big day Bank of Ireland decided to spread a little seasonal cheer, to itself, and hiked up interest by as much as 4pc on credit cards.

The average credit card interest rate is around 18pc.

Many people fall into the trap of paying the "minimum payment", thinking this is all the bank is looking for. You're right, they are, but only so you can rack up more debt.

Paying €500 back via minimum payments alone (2.5pc) will take over five years. You won't even remember what you spent it on.

A far better solution is to go for a lower interest option.

Credit unions, term loans or even overdrafts are cheaper than credit cards.

Apply now and convert your credit card bill to a short term loan which you know you can pay in say, four to six months and stick to it -- you'll be in a far better position to ask for money for Christmas 2013.

Credit unions particularly will be sympathetic to this, so it's worth doing. You're also building up a savings record, which is vital for future borrowing.

Beware though: don't put anything new on your credit card in the meantime or you'll just keep rolling over the loans, or worse, paying back two instead of one.

Switching to a zero interest credit card for six months is also an option.

PTSB and Tesco both offer one for balance transfers, while Ulster Bank and AIB have low-cost ones, but they are getting harder to come by.

You will need to prove you have a good credit rating, so if you've missed payments in the past they may not let you have one.

The first step is to identify what you actually owe. It sounds obvious, but many people simply don't know.

Write down all your short term debts (term loans, car finance, credit card balances etc) in order of their interest rate. The credit cards will be the highest so they should go on top.

Work out how much you can afford to pay. Ignore what the bank is asking for -- it's too low.

Determine to pay off the one with the highest interest first, by direct debit if you can, and keep the rest ticking over.

Once that's cleared divert the saving immediately into the next highest rate loan and keep going.

It's really tempting on seeing a zero balance to start new debt when you have freed up cash.

To avoid this, cut up your card before you start repaying the debt. If you need another after you've cleared it, you can always get one.

In the meantime, use pre-paid cards or debit cards for purchases.

The new Visa debit can be used online just like a credit card but it's all your own money.

Kate Moss once said "Nothing tastes as good as skinny feels".

I don't agree, but I can say that nothing feels as good as being debt free.

Make 2013 the year you have a financially healthier year.

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