The recent Irish League of Credit Unions (ILCU) back-to-school costs survey revealed that the number of parents in debt over back-to-school costs had shot up, from 5% last year to 29% this year.
Nearly three-quarters of parents of secondary school children report that they’re finding dealing with back-to-school costs a struggle, while two-thirds of primary school parents say the same thing.
Given what we already know about inflation and energy price hikes, it seems inevitable now that there are large numbers of people out there crippled with worry because of debt.
Credit card debt is particularly insidious because credit cards have a split personality. Pay off your balance in full and on time each month, and they are the cheapest form of credit out there. But if you miss a payment, or even just pay the minimum, you’ll end up paying the highest penalties and interest in banking.
The first thing to beware of is the minimum payment amount. It is sized so that it largely takes care of the interest, and doesn’t make much of a dent in the capital. You pay it on time and they don’t hit you with any penalties, but they do charge you anything up to 26.6% on that large, rolling balance. This is how they make money.
If you’re struggling under a lot of credit card debt, it’s well worthwhile checking out the Competition and Consumer Protection Commission’s credit card ready reckoner. This will tell you very quickly just how long it’s going to take you to pay off your card.
For example: Suppose you have a balance of €1,000 and you’re paying off €50 a month at a rate of 22.9% — which is the APR on purchases currently charged by AIB’s be Visa card, and by Avant Money and An Post Money’s classic credit card. At that rate — and assuming you stop using your card — you won’t have the debt paid off for two years and two months. And the total amount you’ll end up paying will be around €1,270.
If you were to double your repayment amount to €100, you would have the debt cleared in a year, plus you’d save yourself €150 in interest.
Doubling your repayment amount may not be an option, in which case you should consider switching to a credit card with a lower interest rate. There are several options here.
The best of these comes from An Post Money. Their card will give you 0% on balance transfers for a full year. The good news about this card is that there’s no minimum qualifying salary.
Once that grace period is up, however, the interest rate climbs to the aforementioned 22.9% on purchases. This isn’t the highest rate in the market — that dubious honour goes to Bank of Ireland’s Aer Credit Card, which charges an eye-watering 26.6%. However, that 22.9% is the second highest, so if you’re transferring your balance, the best strategy is to pay it off before the year is up.
An Post’s fee schedule is also sobering. If you’re late with your payment, they’ll charge you €15.24, if you go over the limit, they’ll charge €12.70 and their unpaid item fee is €19.05. While these fees are broadly in line with the market, you can find lower fees if you shop around.
Avant Money’s One card also offers 0% on balance transfers, but for nine months, at which point the APR charged on purchases jumps to 22.9%. Bank of Ireland’s Platinum Advantage credit card offers 0% on balance transfers for 7 months, after which a rate of 19.6% on purchases applies. Avant Money do have a minimum salary stipulation, set at €13,500. By contrast, Bank of Ireland won’t issue their Platinum card to people with salaries less than €40k per year. The alternative is their classic credit card, which also offers 0% for 7 months, charges a slightly higher APR on purchases, but specifies a minimum salary of €16,000.
PTSB’s ICE Visa card offers 0% on balance transfers for six months and does not look for a minimum qualifying salary.
Once you switch, you’ll have to make sure to close your old account, and when you do, you’ll have to stump up the €30 stamp duty that the government takes annually from every credit card account. To ensure that you’re not charged the same duty on your new card, it’s vital to ask your old provider for a letter of closure which you then forward to the new company.
Another alternative is to take out a credit union loan to pay off the outstanding debt. Interest rates on credit union loans can’t be above 12.68% APR, and at the moment, the average rate countrywide stands at 10.59% APR.
Funnily enough, there are plenty of people out there who are saving and carrying large credit card balances at the same time. Deposit rates are miserable at the moment; if you’ve got a couple of grand in the bank and at the same time you’re carrying a credit card debt of €1,000, even if it’s at the lowest credit card rate that’s out there at the moment (AIB’s CLICK visa @ 13.8%) you will still save yourself a packet by simply paying off the credit card.
For those struggling under a lot of credit card debt, the first and most obvious step is to stop using the card. Simple, but not always easy, especially if you’re a slave to impulse purchases.
The other obvious piece of advice is to pay as much as you can each month. In addition to getting rid of the debt faster, you’ll also cut the total cost of the credit.
No harm either in simply asking your credit card provider to reduce the rate you’re paying for a certain period of time. Tell them you’re going to leave unless they do something. You’d be surprised what a little haggling can get you.
If you just can’t do without the card, try reducing the credit card limit, and whatever you do, don’t miss any repayments or underpay the minimum amounts. The penalties if you do are cruel, while late payments may show up in your credit history. Think about setting up a standing order or direct debit to ensure this doesn’t happen.
The other cardinal rule is to not use the card to withdraw cash. The interest rates are high, the interest itself hits your account from the moment you take out the cash, and there’s also a cash advance fee.
AIB, for example, charges a commission of 1.5% on all cash withdrawals, with a minimum levy of €1.90.
Bank of Ireland also charges 1.5% of the cash amount, with a minimum of €2.54.
If none of these solutions work for you and the debt has become simply unmanageable, talk to the Money Advice and Budgeting Service (MABS). This is an excellent, free service that has brought an end to sleepless nights for thousands of people.
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