Consumers are ditching their credit cards by the thousands, according to the latest Central Bank figures. There are now 500,000 less credit cards today than there were in 2007/8, the boom times.
The high cost of maintaining credit cards plus a more realistic perception of actual credit has seen both the reduction in card numbers AND almost €1.3bn paid off credit card balances since the levels of debt on them peaked in 2008.
Some of the change in heart on cards include
- Interest rates of up to 24% +
- Surcharges ( extra interest ) if you are late with the payment or exceed the limit
- The realisation that if you choose to only pay the minimum each month, it will take 20 + years to clear the balance.. whatever it is !
- Additional charges when abroad plus the exchange rate etc
John Lowe the Money Doctor said “Credit card holders are starting to understand that a credit card is one of the most expensive forms of borrowing. Those who have good credit and have an ability to repay should in the first instance consider switching to one of the 3 credit card companies – Permanent TSB, KBC Bank or Tesco Clubcard – offering 0% for the first 6 months on balance transfers. It effectively means that if you can repay the total balance of your credit card over those 6 months, it will cost you nothing additionally. This could play a part in your annual planning.”
The average amount spent on cards is down from a peak of close to €500 per card a month in 2008, to under €400 per card now. The overall amount outstanding on credit cards has fallen from a high of €3bn at the end of 2008 to €1.7bn now – a fall of 43%. However, card debt normally peaks in January.
Over the past eight years of austerity, the interest rates charged on credit cards have shot up – as banks attempt to return to profitability by increasing fees, charges and interest rates on a range of products. But the Government and the Central Bank is trying to get us to use credit and debit cards, and lessen our use of cash. Finance Minister Michael Noonan recently called on shops to cut their prices after new lower fees for retailers when processing debit and credit cards came into effect in early December. And in a further move to incentivise electronic payments over the use of cash, the Government announced in the last Budget that it was imposing a 12c charge for ATM cash withdrawals, up to a limit of €5. Even the Contactless card limits have increased from € 15 to € 30.
There are close to 1.5 million personal credit cards in active use, with almost 4m debit cards actively in use, according to Central Bank figures. With a debit card you can only spend money if you have it in your current account. Credit cards can charge up to 24% on outstanding balances and are deemed high interest short term debt – the type of debt that strangles your cash flow. Income is after all your number one asset. The figures also show that 8.5% of all credit card users exceeded their card limit in October. A Central Bank spokesman said this works out at 51,000 credit card accounts, most of which are held by consumers. And exceeding the approved credit limit will mean charges of between €7 and €8.50, depending on the card provider. Caveat emptor.