When outlining this piece I was going to start with: "In January the Central Bank issued its 2009 consumer financial statistics..." but after running the first few lines by the good folks at the office I changed my mind. They were kind enough to mutter "fascinating" and "m-hmm" in all the right places, but the looks they gave me told a very different story.
Fact is, most people won't willingly read through "Harmonised Competitiveness Indicators" or "Aggregate Balance Sheets", and normally I wouldn't either. The Central Bank Statistics report that I've been leafing through this week was written by bankers for bankers, and although it's freely available, it's tough reading for the untrained layman.
I'm certainly no banker or statistician but after a few pages of huge numbers (most of which you still have to multiply by a million), I came across some real gems: the Central Bank's figures on credit cards. How many of them we have, how much we owe and how much we pay off every month.
The first thing that surprised me is just how many credit cards are in our pockets and purses. As of December 2009, there were 2.33 million active credit cards in Ireland - that's more than one credit card for every two people in the nation!
The recession has taken its toll on the number of credit cards though. Last year saw a drop of 50,000 from a peak of 2.38 million cards in January 2009. In fact, 2009 saw the only substantial drop in the number of credit cards for a decade.
Since 1999 we've been applying for and receiving hundreds of thousands of new credit cards each year and of course, the number of active cards climbed steadily. We went from about 1.2 million to a peak of almost 2.4 million cards in just 10 years.
It's been well documented that the flow of easy credit has slowed to a trickle in Ireland and it's become pretty difficult to qualify for a new credit card. But that hasn't stopped us spending on the ones we still have. Our credit card debt cracked the 3 billion euro mark for the first time in June 2008 and has rarely fallen below that level since. We are currently carrying a collective credit card debt of over 3.1 billion euro
3.1 billion euro doesn't sound like much when compared to the NAMA numbers we're seeing in the news - but credit card debt is personal, it's unsecured and it's often very high interest. And everyone knows how much they owe on their cards.
We're actually pretty good at paying them down though. We throw a billion a month at our balances, or around 430 euro per card. That still leaves us with a rolling 2.1 billion euros of debt; or an average of about 900 euro per card.
So what about that 900 euro credit card debt? What's it doing to me and my shrinking budget? Well, if the card isn't paid off every month, the interest rate is the most important factor and that's where I came unstuck with the Central Bank. Their reports couldn't tell me what the average credit card interest rate is in Ireland and lots of googling couldn't give a reliable answer either... so I turned to the bonkers.ie credit card listings for some current examples.
The highest credit card interest rate listed on bonkers.ie right now is 17.9 per cent. The lowest is 8.5 per cent. That's a pretty big difference, and of course that's only the credit cards available for issue right now. There are plenty of legacy cards with interest rates in the 20s.
So lets start with the 17.9 per cent card. If I make the minimum payment of 3 per cent each month, it'll take me more than 13 years to pay off that 900 euro and I'll fork over nearly 800 euro extra in interest.
If I'm lucky enough to have the 8.5 per cent card and I make the minimum payment of 3 per cent each month it'll take me about 8 and a half years to pay off the card, but the interest bill will only come to 243 euros.
It's when your credit card balance is on the higher end of that scale that you really start to see the numbers add up. With the 17.9 per cent card, a balance of 3000 euro will take 19.8 years to pay off and cost a whopping 2868 euro in interest by making the minimum payment. By contrast, the 8.5 per cent card will take 12.8 years to pay off and cost 892 in interest. That's a pretty big difference.
Credit card companies love customers to make minimum payments because they make so much money that way. So it's always best to try and pay down as much as you can each month - but in these economically challenged times that isn't always possible.
If you know you'll be carrying a credit card balance for a while, the conclusion to this piece is of course to talk to your bank and shop around. See if you can get your bank to drop the interest rate on your card and if they won't, consider transferring your balance. There are still cards out there that will charge you nothing on balance transfers for six months, or as little as 5 per cent for a year. With years of extra payments and hundreds of euro in the difference it's worth it.
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