The Money Doctor: How to avoid getting caught in the credit card trap
THERE are currently around 2.1 million credit cards in circulation in Ireland with a collective debt of some €2.9bn -- that's an average debt of €1,280 on each card.
In 2009, €283m was written off as bad or impaired debt by credit card companies -- four times the total for 2007. As a result, credit card interest rates and the following charges will inevitably increase:
> Interest is between 14pc and 21pc+, though AIB click card offers the best rate at 9.11pc on balances;
>Late payment penalties;
>Exceeding limits penalties;
>Taking out cash charges;
> Going outside the eurozone;
> Surcharges: additional interest on top of the normal interest for non-payment of the minimum required.
It's all money -- your money -- so a reality check is needed. Even the minimum payment requirement has been eased out by some companies. Instead of paying 5pc of the monthly bill, you can elect to pay only 3pc. If you chose to only pay the minimum balance each month, at 5pc it would take you 11 years to clear the balance while at 3pc, it would take 20 years.
Credit cards traditionally have been the most expensive form of debt and this should be targeted first when tackling debt. If you transferred credit card debt to a term loan, it would generally be at a cheaper rate and, eventually, it would be paid off.
Transferring the debt to another credit card company at 0pc (if your credit worthiness allows) can give you up to 10 months to find ways of paying off or reducing the debt.
You must protect your good name. The Irish Credit Bureau lists through its 95 institutional members every missed or late payment of all borrowers -- and that record stays there for five years. Have a judgement against you, and it is there for life -- this means no more credit, ever.
The Rubycard is a pre-paid card where you can only spend what you lodge into the card. It means that those with maxed-out credit cards, refused, or who do not want a normal credit card can now apply for a charge card style card.
You can also obtain a companion card. Apparently 55pc of all teenagers use their parents' credit card for online purchases and this is one way of limiting their spending.
It costs €12.95 to buy the card plus you pay a small fee to lodge monies, but use it for your Ryanair flights and you avoid the booking fee, plus there is an exclusive rewards programme. If you take out the card through Barnardos (www.barnardos.ie) you will be helping the charity.