Financial advise with Grainne McGuinness
As Ireland’s economy gradually reopens and more people get back to work, many individuals and families are only now able to take a breath and assess how their finances have been affected by the Covid-19 crisis. For others, work has still not returned to normal and they are still in firefighting mode.
If your household finances have been negatively affected by the extraordinary events of recent months, the single most important thing to do is address it.
If money coming in is still reduced and/or your debts are unmanageable, seek expert help as soon as possible. The state money advice service, Money Advice and Budgeting Service (MABS) is free of charge, independent of financial institutions, and has been helping people with problem debt for decades. Although their staff cannot meet face-to-face at the moment, money advisers are still available by phone, email and live chat. You can get started by calling their helpline (0761 07 2000, Monday to Friday, 9am to 8pm) or contacting them through their website mabs.ie.
If your income has returned to normal but you have accumulated debt you need to tackle, there are a number of immediate steps to take. If you are behind in loan repayments, talk to your lender sooner rather than later. Personal loans can be restructured and maxed-out overdrafts converted to loans.
For many people, a temporary shortfall in income will have been handled by paying for day-to-day spending with a credit card. As with overdrafts, one option here is to convert the outstanding balance to a loan. This will allow you to clear the debt with regular repayments and at a lower interest rate. But be aware, many credit card providers may seek to cancel your credit card or reduce the limit if you ask to clear the balance with a loan.
Another option available for those whose finances are otherwise in good order is to switch credit cards and move to a provider who is offering 0% or a reduced interest rate on balance transfers for a set period. In the Irish market, there are a number of providers offering low or no interest on transfers for between two and 12 months. This will give you a chance to clear the debt over the next few months without being hit with high interest charges. Some providers also offer reduced interest on purchases for an introductory period which, while it should not be used as an excuse to splurge, may also help with breathing room as you get your finances back to normal. Be aware that you will have to show proof of income and recent statements when applying for the new card so this is not an option for people in serious debt.
For many households the major debt on the balance sheet is the mortgage on your home.
Mortgage holders in Ireland are being warned to consider the extra interest they’ll have to pay if availing of the Irish banks’ extended six-month moratorium on mortgage payments. Irish banks initially reacted by offering customers a three-month moratorium on their mortgage payments, which was then extended to six months in some cases.
While this gave welcome respite, it is important to note that generally interest will still accrue on the loan during this time and can be sizable depending on the loan amount outstanding and the term left on the loan.
“The saying that there’s no such thing as a free lunch definitely applies here,” Daragh Cassidy, Head of Communications at comparison and switching website bonkers ie says.
If you took up the option of a payment moratorium, you should aim to return to paying the mortgage as soon as is practicable, don’t be tempted to stretch it out unless absolutely necessary.
Mr Cassidy offered the example of someone with 10 years left to pay and an outstanding balance of €100,000. At a rate of 3.2% for the rest of the term, they will pay an additional €2962 over the term. If someone is paying the same amount back at the same rate over 20 years, that rises to €3603.
“In most cases the extra interest won't be paid in one lump sum - it’ll be added on to your usual monthly mortgage repayments after the six months are up and spread over the rest of your mortgage term,” Mr Cassidy says. “This means many people may not notice that much of a difference. However it all adds up.”