The Freedom Kit: ‘Inflationary pressure has been serious. It is time to re-engage some good old-fashioned common sense’

Who doesn’t love shopping, and the temptation to treat ourselves and our loved ones? Since Covid, credit and debit cards are omnipresent, and used for everything. But, unlike counting our notes, shopping with a tap at the counter or a ‘confirm’ on the keyboard doesn’t have that same realism as actually spending your physical hard-earned cash. At least a debit card transaction has to come from your actual savings. But it is alarming to see how many people manage to rack up huge debts across multiple credit cards, without realising. I have seen people taking out overdrafts, or personal loans, just to cover the costs.

My first two words of advice? Stop spending. For a debt and stress-free financial future, this is the only sensible move to make. Shopping can be an addiction, a way to cope with difficult emotions or memories, to cheer ourselves up, to show off, or to numb distress. People start by buying themselves the “odd treat” and end up just about making the minimum payment on their credit card.

But, when this becomes senseless, uncontrollable spending, and even the minimum payment is a challenge, it can mean the beginning of a personal debt crisis. Debt when planned and budgeted for, like a personal loan for a car or a house extension, is fine. But debt coming from the overuse of credit cards to buy something you want, rather than need, is potentially a big problem. So act, as soon as possible.

Engage with your lenders

Ignoring debt and not taking action can mean serious damage to your credit rating. Then it becomes difficult to get a mortgage or to borrow for important things. Even worse, banks can initiate legal proceedings to recover debt, which could have more serious repercussions.

The best way to start tackling debt is by making a list of outstanding balances. Look at your bank cards, store cards, and other loans, and contact the banks concerned to proactively engage with them. They will help you agree on a plan to settle debt, within your means, over a realistic time frame.

Consolidate debt

Borrowing elsewhere, at a cheaper rate, to pay off credit card debt can make sense. Something to consider would be to cancel the credit cards, consolidate all the debt, and then take out a personal loan to pay off the outstanding amounts. Moving credit card debt to another card provider that has a 0 per cent APR for a certain period, and strictly paying off the debt over this time, is also an option. Bear in mind that it is important not to keep using the card. Put it away, to put temptation out of reach. It is too easy to let debt roll over on a credit card, and it will mount rapidly.

Go debit-only

Debit cards are a lot safer when it comes to staying within budget. Plus, they meet the growing trend of electronic transactions, online and in-person. For those who want to stick to a credit card, then change to an affordable credit limit. Historically, banks issued cards with high credit available. So, if you are prone to temptation, lower the limit.

Digital Debt

As e-commerce marches on, paying with our bank cards, phones and other gadgets is practically instant. But, inflationary pressure on household and business costs in recent years has been a serious change. It is time to re-engage some good old-fashioned common sense, basically asking “Can I afford this?”, or, “Do I need it?”, before producing the plastic.

A simple tip is not to save your credit card information on a mobile pay device, or an online shopping site. This means it is not quite so easy to impulse-buy, as physically finding your card and entering your information gives that little extra time to think about the purchase.

If you are serious about paying off debt and sticking to an agreed plan, you will certainly need to make sacrifices. Challenge yourself not to buy or pay for anything, unless it is food or essential bills until your debt is cleared completely. We’re coming into summer; cheaper exercise, socialising and entertainment outdoors are more accessible, for both adults and kids. Not all the best things in life come with a price tag.

For those who find a debt situation too daunting to tackle on their own, or who feel overcome, there is professional assistance available. MABS are specialists in guiding people on how best to deal with debt. Alternatively, a local personal insolvency practitioner can be sourced online.

Talk to family too, and especially your partner, as hiding debt can make the situation worse. A problem shared is a problem halved, and the more support there is, the easier it should be to rein in the finances again.

The main advice is to take immediate action. Face up to the situation, and communicate with lenders, like the bank or credit union, to devise an achievable, solid plan of action.

By doing this, and sticking with the plan, the debt can shrink very soon. And, when this happens, the sense of satisfaction and relief serves as motivation not to lose track in future. Try to remember; that just because you can buy it, doesn’t mean you can afford it.

*************

Carol Brick is Managing Director of CWM Wealth Management and HerMoney. A qualified financial advisor, she specialises in the area of Asset and Wealth Management. See hermoney.ie or cwmwealthmanagement.ie for more details.

About HerMoney

HerMoney provides tailor-made financial solutions to self-employed professional women and service contractors all over Ireland. With offices in both Cork and Dublin, the business is a sister company to the long-established CWM Wealth Management.