Ditching debt and those costly credit card bills

The Christmas spending is soon coming home to roost but financial guru Carol Brick has some timely advice

CREDIT cards are a convenient necessity these days, but can be risky if managing money is a challenge. And they are an expensive form of borrowing. It’s easy to get caught up in the frenzy of Christmas shopping, and the temptation to treat our loved ones. But, how to begin clearing those large postChristmas credit card bills is not quite so simple.

It is alarming to see how many people manage to rack-up huge debts across multiple credit cards, with some even taking out overdrafts, or other personal loans, to cover the additional costs of the festive season.

My first two words of advice – stop spending! This is the sensible and most significant move to make, to begin a path to a debt and stress-free financial future.

Shopping can be an addiction, a way to cope with difficult emotions or memories, or to numb distress. People start by buying themselves the ‘odd treat’ and putting a ‘little debt’ on their credit card. But when this becomes senseless, willy-nilly, uncontrollable spending, it can mean the beginning of a personal debt crisis.

Debt when planned and budgeted for, like a personal loan for a car or a house extension, is acceptable. But debt arising from the overuse of credit cards to purchase items people want, rather than need, is potentially a big problem.

Ignoring the situation and not taking immediate action will mean serious damage to the person’s credit rating. Even worse, banks can initiate legal proceedings to recover debt, which could have even more serious repercussions.

The best way to start to tackle debt is by making a list of outstanding balances. Then, without delay, contact the banks concerned to proactively engage with them, in terms of setting out a solid plan to settle debt, within your means, over a realistic time frame.

Borrowing elsewhere, at a cheaper rate, to pay-off credit card debt makes sense. An action to consider would be to cancel the credit cards, consolidate all the debt, and then take out a personal loan to pay off the outstanding amount over a certain time frame.

Moving the credit card debt to another card provider with a 0% APR for a certain period, and strictly paying the debt off over this time, is also an option. But then, it is important to cancel the card to put temptation out of reach. It is too easy to let debt roll-over on a credit card, and it can mount rapidly.

Debit cards are a lot safer, when it comes to staying within budget, and they meet the growing trend of electronic transactions, online and in-person. For those who want to stick to a credit card, they can change to an affordable credit limit. Historically, banks issued cards with high credit available, so it makes sense to lower the limit for those who are prone to temptation.

As e-commerce marches on, paying with cards, phones and other gadgets is practically instant, so we need common sense, basically asking ‘can I afford this, or, do I really need it?’

A simple tip is not to save your credit card information on a mobile pay device, or an online shopping site. This means it is not quite so easy to impulse-buy, as physically finding your card, and entering your information gives that little extra time to think about the purchase.

Anyone adamant on paying off debt and sticking to an agreed plan, will certainly need to make sacrifices. Until debt is cleared, I would advise trying not to buy or pay for anything, unless it is food or essential bills, until debt is cleared completely.

For the many people who find a debt situation too daunting to tackle on their own, or who feel overcome, there is professional assistance available. MABS are specialists in guiding people on how best to deal with debt.

Alternatively, a local personal insolvency practitioner can be sourced online.

The main advice is to take immediate action, to communicate with lenders, like the bank, and to devise an achievable, solid plan of action.

By doing this, and sticking with it, debt can shrink very soon. And, when this happens, the sense of satisfaction and relief serves as motivation, that generally gives big spenders much more control over their finances, moving forward.

Carol Brick, QFA, is Managing Director of CWM Wealth Management, a personal finance company she set up in 2008 which has offices in Cork and Dublin. She operates a dedicated business service, HerMoney, providing financial advice for professional and selfemployed women, and a First Steps planning module for parents. For more information and specialist advice see cwmwealthmanagement.ie.