Our weekly money advice column in the Irish News of the World is available in the published form here or in text below.
CREDIT cards can be a godsend and a curse. I have a friend who doesn’t have one, so I used to wonder how he booked flights or bought anything online. Recently I discovered his secret — he just lets his wife put it all on her credit card, clever man.
For those of us who don’t have such an arrangement, it means we most likely have a plastic friend, which costs €30 a year. That !30 isn’t a credit card company charge, it’s tax, and the first of many costs. Credit cards can get you out of a bind or land you in one, depending on how you use them.
Rates vary in Ireland, from as low as about 13 per cent to as high as 23pc. And it’s that level of interest that’s the problem. If you took out a loan at say, 25pc a year, and you paid nothing for three years, the amount owed would effectively double.
This is why credit cards can cause such big problems. Although the size of the personal credit card mountain out there has dropped by just over seven per cent in the past year, it still stands at a towering €2.64billion.
With my accountancy and financial advice hat on I’ll tell you this much — about 90pc of the clients we meet about money problems admits that credit cards are a major factor in the mix. Sometimes it’s the cause of the problem — it’s been used as a lifeline, or something that’s called on to mask an underlying issue by providing a line of finance when other regular incomes have run out.
In any case, credit cards can be massively troublesome if they’re not respected and managed well. If you have mortgage problems, the number of times outside of scheduled requirements that your lender can call you per month under the CCMA (Code of Conduct on Mortgage Arrears 2010) is three, but with credit cards those restrictions don’t apply.
Credit card collection teams are among the most aggressive in the industry, but it’s a mistake to think they can just stamp all over you — there’s a Consumer Protection Code that has certain protections built into it for your benefit.
One simple example is that card issuers can no longer send you those once-commonplace letters saying “your credit is increased by €2,000 up to €10,000” or whatever amount they felt like on the day.Under the Consumer Credit Act they can’t call you between 9pm and 9am from Monday to Saturday and they can’t call you at all on a Sunday.
If you have credit card problems and are unable to pay, there’s a fixed line of defence you should set up. We spoke to Frank Conway of moneycoach.ie, who always comes up with some great tips for worried punters. He said: “It’s vital to prioritise debts, and mortgages should always come first. Credit card companies are often willing to restructure with genuine clients who approach them in an honest manner.”
So here’s what you do. First, write to the card issuer and let them know about your problem. Ask them to freeze interest on your account until you’ve met and discussed this issue with them. Have them send out a “standard financial statement” so you can fill it in and give them a clear idea of what your finances are looking like.
Every card issuer deals with every case differently on a case-by-case basis, but what’s vital is to engage with the credit card company, and don’t be afraid to ask for concessions. Mr Conway said two key elements are “honesty and consistency”, so be honest with the company you’re dealing with, and be consistent. If you come to an agreement with them, stick to your end of things.
They’ll typically review your situation every six months. Mr Conway also warned that using a debt management company, which charges fees, may make things easier for you, but because there are charges it diminishes your ability to repay your debts and extends the period of time it will take to pay them all off.