If you're a Halifax credit card customer, you probably know by now that your card will stop working on Friday June 18th. Halifax have been sending out letters to customers suggesting that they pay off their balances and find a new credit card provider before then.
The thing is, if you have a balance that you don't want to pay off before June 18th, Halifax is offering a deal that seems pretty decent. They'll cut your interest rate from over 13% to 10% and the repayment amount will be fixed to 3% of your balance on June 18th. So, make that 3% payment every month until you're paid off, and that's that.
What Halifax is essentially doing is putting customers with balances on a payment plan and taking away their credit line. When financial counselors advise debt clients, the first things they usually suggest are cutting up credit cards, stopping any open lines of credit and then finding ways to reduce the cost of their debt. Halifax is doing this for its customers (whether they like it or not!).
On the face of it, it seems like a great deal - especially if you want to slowly clear off your credit card balance and stop using your card. But I have a bad habit of looking gift horses in the mouth, and couldn't help looking at this with a cynical eye. Here's why...
Credit card companies love customers that reliably make low or minimum payments. They make absolute truckloads of cash that way. And yes, I acknowledge that 10% is a low rate for a credit card, but it won't really be a credit card anymore after June 18th, will it? It'll be more like a personal loan with a low repayment amount that'll take ages to pay off and make loads of extra cash for Halifax. See? I am cynical!
The truth is that this is structured just like a personal loan. No matter what your balance is, it's going to take you 40 months to pay it off, you'll cough up an additional 18% of the starting balance in interest, and depending on how much you owe on your card, you may not even be able to afford to make the minimum payment anymore.
Here's a back-of-envelope calculation. Let's say you've got the national average balance of about €1,300 on your Halifax card on June 18th and you decide to go with the 3% payment deal. Like I said, it'll take you 40 months or nearly three and a half years to pay it off. Your monthly payment will be €39 and by the time you've made your last payment, you'll have given Halifax €229 in interest.
At last count, Halifax had about 50,000 credit card customers in Ireland. They could potentially make €11.4 million out of these customers with this deal and do it without a single branch in the whole country! Wow.
Now I know that plenty of customers will make alternative arrangements, and Halifax insists that it would prefer customers to pay off or transfer their balances before June 18th, so it's worth looking at those alternatives. Personally, I'd like to have a credit card that actually works, and I'm sure there's got to be a better deal out there.
If you have a Halifax current account, all the major banks have been courting you for your business, but I've only seen one ad so far offering Halifax credit card customers a new card and a balance transfer deal. Ok, the availability of credit in Ireland isn't what it used to be, but that's not to say there aren't good deals out there, especially if your credit is decent.
So, since MBNA is the only company I've seen advertising for Halifax credit card business, let's start there. They offer a 10-month interest free balance transfer - great so far. Their interest rate after that is 14.9%. If you're really strapped, they offer a 1% minimum monthly payment. That's not so good if you want to pay off your balance, but handy for the occasional month when you're running a bit short.
So how do they stack up? Well, if you transfer over your hypothetical €1,300 balance to MBNA and pay €39 a month, you'll have already paid off €390 by the time the interest free period is over, but then the higher interest rate kicks in. It'll take you another 28 months to clear the balance and it'll cost €171 in interest. It's a better deal though. You'll save €78 and make two less monthly payment with MBNA and you'll have a credit card you can actually use.
The AIB Platinum card is pretty decent too. It has a 12-month balance transfer rate of 3.9% and an APR of 12.5%. So doing the same exercise, you'll have the balance down to €875 at the end of the first year and pay about €43 in interest. The rest of it will take another 2 years and 2 months to pay off and it'll cost you a total of €170 in interest. So AIB will take as long to pay off as MBNA but it'll save you another euro!
Making a saving of about €79 isn't exactly going to put you on the rich list, but if Halifax are shutting down your credit line, it's worth looking for another credit card rather than sticking with the deal they are forcing you into, and you'll have a credit card that actually works. Bottom line? As up to 60% of new credit card applicants are being refused across the board, you may have no choice but to accept the Halifax deal. It's still no harm to look for a better credit card deal, as you may be approved by a new issuer and then you'll have a credit card that works.
And of course all the help you need to find the best card is on bonkers.ie.