The third quarter of 2018 saw household debt levels drop to its lowest in 13 years, according to the statistics released by the Central Bank. This meant that household debt to disposable income ratio stood at 126 per cent; helping the Republic Of Ireland rank fourth on the table of debt to disposable income for the European Union. Although the decline can be seen as a positive step forward, closer examination of the debt composition has revealed a staggering percentage being attributed to credit card debt. In the first quarter of 2019, credit card spending has risen 15 percent in the first quarter alone. These common credit tools are often cited as a cause or reason behind the debt struggles of many, and with more companies launching their credit cards offering, consumers are more inundated than before when it comes to choices. This presents even more reason for these credit tools to be used strategically and tactically, ensuring the intended benefits are maximised, instead of the other way around.
Know The Credit Terms And Rewards
Consumers remain woefully unaware of the terms their credit cards are operating on, and just as unaware of the mechanisms and impact behind the use of these plastic cards. Although a majority of consumers rely on their credit cards for purchases, 6 in 10 of them are unaware of the interest rate being paid on their outstanding balance, according to a survey by the Irish League Of Credit Unions and iReach. Many of the respondents incorrectly averaged their interest rates to be between 6 and 10 percent; although the average interest rate in Ireland ranges between 13 an 23 percent.
Not only are consumers lacking knowledge of what their credit interest rates are but 68 percent of them admit to not understanding how interest rates and other credit card terms work. The lack of financial knowledge that continues to show up amongst consumers means they remain largely blindfolded when it comes to their credit agreements and the cost they are actually paying to access credit facilities such as credit cards.
Factor In Where You Spend And Not Just Interest Rates When Choosing A Card
Credit card reward schemes have returned to the consumer credit landscape, with a host of credit institutions and banks offering various reward programs in exchange for customer loyalty and use. The Bank of Ireland and AIB each offer 4 different cards, all with different rewards such as 0.50 percent cashback, lowered interest rates, and everyday reward schemes. Others such as Tesco offer customers the option of accruing points in exchange for store vouchers. However, the best way to maximise these offers is to choose a card with rewards that are relevant to your current lifestyle and needs. The lack of comparing their options do not end with credit cards either; neglecting to compare their borrowing options is one of the most prevalent blunders committed when securing personal credit. Consumers also need to be careful to check the card restrictions and eligibility terms when choosing a card with the best rewards for them. Therefore, the choice of credit card is not just about eligibility or interest rates but encompasses a myriad of factors for consumers to consider.
Activate And Integrate Spending Alerts Into The Personal Budget
Financial tech companies and banks continue to promote the use of mobile apps to help consumers take control of their financial lives. While there is an uptick in the use of smartphone apps for banking amongst consumers, not everyone is utilising built-in tools such as credit card spending alerts. Furthermore, consumers can take it a step further and integrate it into their budgets to help their budget process be more efficient. There are also various types of alerts available which allows the credit card holder to personalise their alerts to what they need to keep track of. Setting a limit or authentication limit prevents large impulse purchases and means consumers can track their spending to match their ability to repay.
With past studies indicating that people tend to spend more when paying with credit cards, practicing restraint and implementing these safeguards will prove invaluable in avoiding the credit card debt trap in the first place. Credit cards are intended to be a tool in the financial management department but without the right approach, it can end up becoming a liability as being witnessed by many Irish consumers.