How to solve your credit card anxieties
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Older homeowners have a solution for credit card quandary, says our financial columnist Peter Sharkey.
Unless you bank online, that worryingly dull thud you've heard frequently in the porch recently is, quite possibly, written confirmation of your festive season expenditure. If you happen to bank online, the same information is usually accompanied by a jolly 'ding-dong', though the detail attached to the incoming email is equally unwelcome.
Yes, it's that time again: mountains of credit card bills have started arriving in homes across the land, each detailing seasonal generosity in a series of glaring, unforgiving statements.
Did you really buy that expensive [insert purchase details] item for [insert name] and receive just a bottle of cheap white wine in return? You don't even like white wine.
Unfortunately, January's credit card statements are renowned for delivering the starkest message of financial over-indulgence. Furthermore, after you have re-examined your bill for the umpteenth time, your initial sense of dismay turns to terror once you realise that there are still a couple of things missing.
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Details of those last-minute extras which seemed such a great, pre-Christmas idea have not yet been processed, so ensuring that next month's bill promises to be equally damaging to your brittle finances.
The best way of clearing credit card debt is to pay the full amount owed as soon as you receive the bill. Granted, it's not a realistic solution for everyone, but as flurries of statements arrive, this is a perfect time to check what rate of interest you're paying.
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According to the most recently published data, the average rate of interest (APR) charged by credit card companies is a staggering 23.1pc, more than 30 times the official bank base rate of 0.75pc.
However, it is possible to avoid paying credit card interest for up to three years, sometimes longer, by transferring your outstanding balance to a card offering a 0pc introductory rate. This could prove extremely worthwhile for people making regular repayments.
Let's assume your credit card balance is £3,000 and you're being charged 20pc annual interest, repaying £100 each month. Under this arrangement, it would take around three years to clear the debt and you would pay £1,047 (that's 35pc) in interest.
Moving the same balance to a card with an introductory 0pc rate will usually incur a transfer fee of 3pc (£90), but provided you repay £100 a month, the debt is cleared six months earlier and saves around £950 in interest.
But how long can you go on searching for introductory offers? And what happens when interest rates start rising again? Will you really want to curtail your festive expenditure next year and the year after?
Homeowners aged 55 and over have another solution.
This column has referred before to the millions of people who find themselves in a frustrating 'asset rich, cash poor' situation. Most have worked for years on their homes, building considerable equity, only to discover that they continue to be hit by credit card companies at precisely the time in their lives when they expected to be enjoying the fruits of their labour.
Fortunately, there is a way for older people to improve their later-life finances. A combination of much improved regulation and broader product ranges means that releasing equity from your home with a lifetime mortgage could provide secure access to your property wealth.
Not surprisingly, releasing tax-free funds has become increasingly popular, not least because the over-55s are guaranteed to retain full ownership of their home for life, or until they enter permanent long-term care.
One significant additional advantage is there are no monthly repayments to make.
Every year, around 70,000 people use lifetime mortgages to access their property wealth and supplement their finances.
Of course, it's important to note that releasing equity may reduce the value of your estate and could affect your entitlement to means-tested state benefits.
Nonetheless, the tax-free cash released from your home is yours to spend as you see fit; in addition to settling credit card bills as soon as they drop through the letterbox, backpacking around Asia, heading off on a world cruise, or installing a new kitchen suddenly become alternative options. Lifetime mortgages are helping to solve the 'asset rich, cash poor' quandary, much to the relief of older homeowners who now have a viable alternative to spending time hunting for credit card transfer deals.
To learn more about equity release, visit the Moneymapp.com website.
Alternatively, for further details and to receive a FREE guide to equity release, telephone 0800 612 6755 and quote reference LIFEM1.
THE WEEK IN NUMBERS
According to the UK Cards Association, there are 32.3 million credit card holders in the UK. The average credit card purchase is £53.55, significantly higher than purchases made with a debit card (£38.43) or a contactless card (£9.40).
While this figure may feel like the size of your credit card bill, it's actually the largest amount credit card companies have written off in a single year. That was back in 2010; last year's total was £1.56 billion.
•26 years, five months
On average, households have £2,656 in credit card debt. On cards charging average interest, this would take 26 years and five months to repay if you were making the minimum monthly repayment.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.