It was in my 'schedule of topics to blog about' and it seems it is timely as in the past 3 weeks only I have been asked about the above topic on 3 different occasions. In addition to that my present wife & I have just returned from a weekend city break to UK, and there is no doubt that flashing the oul' Credit Card around the place is an easy pit to fall into, hence the reason I don't currently operate a Credit Card (& hence why I use the term present wife!!).
The 3 people I have chatted to about the issue of Credit Cards in the past few weeks all have or have recently had fairly sizeable amounts owing on their cards, and all for various reasons. One was to pay day to day bills on a 1-income household and to tie them over till pay-day, another was an accumulation of expenses for house furniture and electronics, and the other was a big blow-out holiday last year. Each of them were really aware of the debt, however what was surprising was that two of the individuals were paying the minimum monthly payment only, and not making a concerted effort to clear the actual loan. Upon speaking to them this was not due to an inability to repay the debt but a lack of awareness of the cost of the debt. We are out to fix that in this week's Blog!
How Do Credit Cards Work?
Credit Cards may seem to many as a Celtic Tiger thing, when we over-indulged and purchased luxury items at a rate of knots and never bothered repaying them, only for the levels of personal unsecured debt to spiral out of control. They were, but they haven't gone away! Credit Cards are still a phenomenally profitable product for the providers, because for that very reason; many of us don't clear them each month and therefore pay really high interest on the balances and are exactly the type of customer which will generate very healthy profits for the providers. As outlined in our most popular Blog#3 we shared 5 basic principles in managing our finances, clearing debt and Credit Cards was one of them! So how not to do it?
The following are the steps involved in your being an ideal customer for a Credit Card provider:
If you were to follow steps 1, 2 & 3 however on step 4 you actually clear the balance the Credit Card provider will make next to nothing from your custom. Typically you can get between 30 and 60 days interest free credit on a Credit Card, which can be very handy! It is only when Credit Card users start coughing up the massive interest that the provider's gravy train rolls in!
The minimum repayment amount is a figure which will you are invited to repay on the card after a certain period of time of their being a balance outstanding on the card. Paying that amount will go nowhere near clearing your debt over a short period of time, typically it is a figure which will go towards paying the interest you owe at that point in time on the balance outstanding, plus fees. Therefore it is important to note that merely paying the minimum repayment amount is not in your best interests, if you can at all afford to pay more!
Why Get A Credit Card?
They are shocking handy! In the past they were particularly useful when we did not have Visa Debit Cards or indeed didn't use cheque books (how many of us here every wrote a cheque I wonder!?) and you needed to make purchases for items such as travel expenses etc. They quickly became a really convenient form of on demand personal loan, which is where it can get dangerous. However in today's society of 'see it- want it- buy it' the Credit Card can be a way of getting what you want without having to save for it, which in my book (not an actual book, yet!) is a habit which will erode your savings capacity and future wealth massively.
Can I Get A Credit Card Now?
After a few years of silence we now see providers back in the market of issuing Credit Cards; we are being enticed with cash-back offers, discounts on grocery bills, complimentary travel insurance and low introductory rates. We will shortly get to the latter and how it can be of real assistance to you in managing your Credit Card balance. So yes, provided you have a reasonable income and a reasonably clear credit history most providers will be open to doing business with you.
The providers are not giving these incentives for your benefit, they are profitable products and generate lots of income for them because many of us (including yours truly before I saw the light!) are often quick to purchase and slow to repay, a Credit Card provider's dream!
What Is My Credit Card Costing Me?
Every Credit Card attracts a €30 Stamp Duty fee per annum, no avoiding that one, unless you don't have one! We will run through an example of the cost of having a credit card and the interest payable on it, for illustration.
Credit Card Balance Outstanding €5,000
Rate of Interest is 23%
If you are paying €120 per month you might think that you are making progress, however it will take approximately 7 years to repay the €5,000 (assuming you cut up the card now and make no more purchases!). 7 years! Totaling just over €10,000 in repayments, €10,000!
If you decide you can pay more and repay €200 per month, you will have €5,000 cleared in just under 3 years time, a much much shorter period of time, and a much much lower amount of interest. Total Repayment of €6,900 approx. It is still a very saucy amount of interest, the typical rates of interest of 18-25% are really high and even over 3 years as above on a smallish amount can be quite difficult to stomach.
Should I Clear My Credit Card As Early As Possible?
Eh, yes! If you have the means to do so immediately then it can be a very prudent thing to do. Say you have €5,000 in the bank, and you have a €5,000 credit card debt it makes a lot of financial sense to clear that debt, and then start building your emergency, retirement, education funds etc thereafter. Purely on the basis of the prohibitive cost of the Credit Card.
Is There Another Way To Clear My Credit More Effectively?
Yes, potentially. There are 2 angles to tackle this from. The first is the good old fashioned 'ask for a discount' approach. It has been known to work in the past. If you contact your provider and ask them to reduce the rate on your outstanding balance, they may just do it!
Secondly, I mentioned above that many providers offer an introductory discounted rate, and indeed most offer 0% balance transfers. Essentially what that means is that once your are granted the card you can transfer your outstanding balance from the old card to the new card and not pay any interest on that for a period of typically 6 months. This allows you the opportunity to really pay off the actual loan of €5,000 and not just interest.
If you were to do this, and even if you don't get a better rate than the illustrated 23% on your existing card it can have a massively positive impact on the time it takes to clear the debt (again assuming you cut up the card on receipt of it so you don't use it!).
In the above example your €120 would have this new card cleared in just over 5 years instead of 7 years. Might not sound earth shattering however that is a saving of €2,800 approx, on a debt of €5,000. Massive!
In the case of the €200 monthly payment example you would have your debt cleared in less than 2 and a half years instead of 2 years 11 months, which is a saving of €1,200 on a €5,000 debt!
I was delighted to hear in one of the cases at the start of this piece that the couple who were telling me about their need to use the Credit Card to tie them over till pay-day have managed to clear their Credit Card debt, it is a financial as well as emotional weight lifted and allows them to focus on managing their money in a proactive way and to plan for some family events and milestones which are very close to their hearts, so well done to you guys down in Limerick, you know who you are!
As always I need your help and support in spreading the Informed Decisions word so please do share this with anyone who you believe may benefit from the information, and if you have yet to please do take the 4 minutes involved in completing the Annual Informed Decisions Survey.
Many thanks for your interest and for sharing the love.
This week we are sharing something a little 'off topic'!
I have been looking for an opportunity to donate this year, so for every completed Informed Decisions Survey in the next 6 days I will donate €1 to Irish Cancer Society. Given that I am doing all 'this' at no monetary gain I need to cap this at €200, so please help me get to that mark.....share it like there's no tomorrow!
Six months after the very first Informed Decisions Podcast it probably is a good idea to check-in with you 'regulars' and provide a bit of an update on how this little website is progressing! I am also reaching out to you and seeking your help; with an important invitation for you to have your say on the shape and format of Informed Decisions via a short but important anonymous Survey/Questionnaire!
If you have got any value from us in the past 6 months we would really appreciate your time (4 minutes!) in completing this and having your say. It will allow us to identify a broad profile of who is listening & reading, and importantly your preferences. Ultimately it will ensure we provide information and tips which you want! How novel an idea is that!?!
If you would prefer to jump straight to the Questionnaire you can please do so on this page here. If you would like to know a bit more about the website, how it started & how it is getting on then keep reading...............
How Did It Begin?
December 2015 during the Christmas Break I took it upon myself to start writing on the LinkedIn blog platform 'Pulse', just as a little exercise in creativity. I have a deep interest in all aspects of money management and Financial Planning and was quite fond of writing, so it was a natural thing to do! Another catalyst was that so many of my own circle of friends have a self-declared lack of interest or knowledge in this space, so I knew it would be a help to my own generation (millennials!). The feedback from these initial articles were positive, and I really enjoyed the process of creating the pieces. I was hooked!
After a bit of consideration I decided then to go about starting my own blog, one which I could manage myself instead of it being owned by LinkedIn. As you know I work full-time as a Financial Service Trainer so I approached my employer to confirm there would be no conflict of interest in me doing so. They were most generous in giving it their thumbs-up and wishing me every success, provided I clearly expressed that my views were my own, naturally enough. The scene was set! After much research and procrastination the website www.informeddecisions.ie went live in April 2016.
"What keeps me going are my original motivations; to support my fellow millennials with making informed money decisions, to exercise a creative muscle and to ultimately to make a positive difference."
Where Did The Podcast Come From?
Podcasts in the Financial Planning & Personal Finance space are rare, even in much larger countries like UK, almost like hen's teeth! They require a lot of unseen preparation and are notoriously difficult to get audiences so that probably explains why there was none in Ireland until Informed Decisions Personal Finance Podcast. Producing a Podcast seemed like a major stretch of my imagination in April 2016 but I researched the idea over the following months, and with the support of some great folks in the UK and here in Ireland it started to come to fruition. In early August we launched our first podcast, which was an exciting time for Informed Decisions, an achievement of a once galactic goal! What I have found is that I have learned so so much about an awful lot in the process, so it has been win win really.
Where Are We At Now?
Well the iTunes reviews have started coming in and the feedback has been really positive. Please do check it out here and feel free to add your own iTunes review if you are using it and feel this site has been of benefit to you here.
Writing a Blog & Podcast each week takes consistent effort which was not always my most obvious strength! Both from a research, planning and indeed writing & recording perspective there is lots to consider, not to mention the computer side of things! What keeps me going are my original motivations; to support fellow millennials with making informed money decisions, to exercise a creative muscle and to ultimately to make a positive difference.
I heard a quote recently from Shane Mulhall (RIP) of The School of Philosophy which really resonates with me "Do for the joy of doing, not for the purpose of advancement". I hope that doesn't sound too waffly but that sums up Informed Decisions pretty nicely. I am enjoying it and the feedback and value others are getting from it is real, so again it's a win-win!
Speaking of feedback, we have received lots or really positive comments from readers of the Blog and Podcast listeners. People have got in touch to say that as a result of it they have been able to take proactive action with regards to their budgeting, retirement planning, protection, goal setting etc. This makes it worthwhile for me personally.
It was not something that I had kept an eye on at all but I was recently told that the Podcast was in the Top 20 in iTunes Chart in it's category! Top 20!! I was dumb-founded and obviously thrilled to see that the word was spreading and more and more people all over the country are benefiting from it.
What Does The Future Hold?
Who knows! Many folks have asked me am I going to turn it into a business and will I do x,y or z. To be completely frank I really enjoy my role as a Trainer, and I really enjoy Informed Decisions, so for as long as both sensibly co-exist I am delighted to do both! As long as you continue to get benefit from the site, blog and podcast I will keep producing it.
My Ask Of You?
We have no way of identifying the broad profile of you, those who are actually listening or reading, nor have we any sense as to what you guys actually want from us. Therefore I have created what I hope is an attractive and quick questionnaire which gives you the opportunity to input into what we are doing and how we do it. We will compile & share the findings (anonymously obviously!) once we have sufficient responses to it. So do it now (please)!!
If you have got any value from this website then we would be so appreciative of your participation. Click here or click the image below to get stuck in.
Thanks so Much.
Firstly, thanks for joining us! If you are a new visitor to Informed Decisions, have a quick look over here to find out what we are all about. If not, welcome back to Ireland's only dedicated Personal Finance & Financial Planning Podcast!
Everyone has been told to do one, but 'why & how' needs to be answered first! Join Paddy as he demystifies the topic in this 16 minute audio show....
Thanks for sharing and spreading the love, the message is getting out there. Thank You.
If you prefer to read this episode then please do check out Blog #21.
A pretty influential insurance 'evangelist', Hesus Inoma is founder & CEO of WeSavvy, a Dublin-based start-up in the process of reshaping how we engage and manage our insurances.
If you have ever gotten a Health, Home or Motor Insurance renewal letter in the post or via email you will know it is not always the most rewarding experience!
WeSavvy is working to forge the future of how consumers interact with their Insurances, get rewarded and essentially earn cash-back by living healthy life-styles.
Thanks to Hesus for his time and sharing what he sees as the future of Insurance across the globe.
Thanks to you too for tuning-in!
You can join the WeSavvy movement at www.wesavvy.com