How to clear your Christmas credit card debt

Top tips for clearing your credit cards if you overdid the seasonal spending

of Credit Unions found 58pc of people had no idea what their interest rate was, and a quarter believing it was less than 5pc – fat chance! Minimum Payments When you get your credit card bill, you’ll be given three options. The first (and most attractive to the bank) is to make the minimum payment. There is no legal minimum, but most lenders plump for around 2pc to 4pc of the bill – small, manageable and lulling you into a false sense of security.

On a debt of €3,000 that’s just €60 to €120 a month and it’s all you’ll ever be asked for. But it would take a whopping 11 years and five months to pay it off via minimum payments (at 22pc p.a.), and that’s if you buy nothing else for that entire time (see ccpc.ie for a credit card calculator).

In the meantime, the bank hoovers up the profit. You’ll also be charged interest on all your future purchases from the day you bought them.

“If your statement shows you owe €1,000 and you pay off €900 by the due date, most providers will charge you interest on the full €1,000 until the date your payment reaches your credit card account”, says the CCPC. “After that date, you will be charged interest on the €100 that remains unpaid and on any new purchases you make”.

It’s revolving door debt – and banks love those customers.

The second option is to select your own repayment. Even boosting it to €200 a month would clear a €3,000 debt in 18 months.

The third option is to clear it in full, every month by direct debit. This may not be manageable right now, but you should aspire to it. That way, the card is free; you get to access credit for nothing. The banks won’t like it, but you will!

Overdraft

Banks extend temporary credit lines on current accounts, and although they charge interest (hefty at times), it’s never as much as on a credit card.

In Bank of Ireland’s case it’s 13.25pc, for instance, which would be typical.

Most lenders will offer authorised overdraft facilities to the limit of your monthly salary. There may be an arrangement fee also (AIB’s is €25.39, for example.).

Doing this secures you credit if you find yourself straying into debt at month end. But doing it regularly indicates a wider budgeting issue which you can address.

Unauthorised overdraft (where it’s not agreed), carries hefty fines. Not only a ‘referral’ fee, i.e. a charge for bouncing cheques or direct debits, but higher interest also. Personal Loan

If you have debt which is in the thousands, perhaps from several sources, it might be worth consolidating it all into one loan, one repayment and one fixed term.

Personal loans are much cheaper than transient credit, usually costing 6pc to 10pc p.a. This means the loan is paid in a measured, structured way (see panel for examples).

Consider the credit union too – most of them are chronically under-lent and really need to get money out to customers. And they are happy to field loan applications in January.

You do not need to be a member in most cases, and it’s a great way of instilling a savings habit also.

Quick Fixes

A quick loan, with no questions asked can seem like a good idea. But the Central Bank warns against it, because there are so many dodgy firms out there. If it’s not on their register of money lenders (centralbank.ie), don’t go near them. I’d recommend you avoid all moneylenders, even if they are legit.

It may be worth moving all your debts into one loan

Financial hangover: If you’ve overspent at Christmas, it’s time to sort out that credit card debt

Sinead Ryan Christmas a bit too merry? Was Santa more than generous? If you’re suffering from financial hangover then January blues aren’t going to make things much better. With credit card bills dropping this week, the harsh, cold reality of 2021 – despite its hopefulness with a Brexit deal (of sorts) and more importantly, the Covid vaccine rollout – will still hit many families hard. This week I’m looking at that most invidious of debts – credit cards, and see if there’s a better way of organising yourself and your money this year. Christmas debt Firstly, give yourself a break. If you over-spent, then you’re not alone. It’s what people do in December, and perhaps not knowing whether shops were going to be open or not, or if online deliveries would make it, there was a bit of a last-minute scramble and, possibly, over-buying. First, analyse what you owe on overdraft or on a card, and don’t forget the items which may be still ‘pending’. Add it all up. Better to be honest with yourself now. Decide a time frame for clearing the debt. Three months is perfectly fine, but give yourself the goal of getting rid of it completely, not adding any further purchases to let you address whether you need a credit card at all. For day-to-day transactions, debit cards can do everything, and all with your own money. With interest rates often topping 20pc per annum on credit cards, it’s a ridiculous ask of customers when banks are effectively borrowing that money for free. A survey by the Irish League