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Smart Consumer: Cut your losses and take a scissors to your credit card

Cash-strapped consumers are cutting up their credit cards in record numbers. But could you survive without your little plastic friend and what would you save by deciding enough is enough?

A lot of people have considered that very question and decided that you can indeed survive without a credit card, with large savings the result.

The deepening recession has prompted a wave of 'card closures'. Around 100,000 credit card accounts have ceased in the past year, figures calculated by this newspaper reveal.

Some of these accounts may be a second or third account held by the same cardholder, but others have clearly decided credit cards are a dangerous financial product and we would be better off without them.

Consumers are also paying off card debt at record levels, with €191m paid off in the past year alone.

An examination of Central Bank figures shows cardholders have made massive efforts to get to grips with their debts, with the amount owed down from a total of €2.9bn at the start of 2010 to €2.7bn now.

The figures, from January of this year, also show that there are now two million personal credit cards in circulation, down 102,000 in a year.

Getting rid of a credit card could save a persistent user (or should that be an abuser of a credit card?) €1,200 a year, according to Frank Conway of personal finance website www.moneycoach.ie. Very heavy users could save €3,000 a year by ditching their credit card.

Card debt a major issue

Many households have found to their cost that credit-card debts are the most persistent and difficult to shift.

Some eight-out-of-10 people owe money on their plastic fiends.

Almost 100,000 people are three months or more in arrears on their payments on unsecured debts such as credit cards.

Rates are sky high

The market here is dominated by AIB, Bank of Ireland , MBNA and Ulster Bank.

But these providers charge some of the highest interest rates in the market.

MBNA charges the highest rate for purchases, with a rate of 21%.

High rates are also charged on cards offered by EBS, One Direct and Tesco Personal Finance.

The AIB Click card and the Bank of Ireland Clear Card have rates of around 13%, the lowest in the market for purchases.

Default levels rising

The numbers unable to repay their credit cards is soaring.

Consumers are so cash-strapped that €1 in every €10 owned on credit cards is not being paid back, according to banking research firm Lafferty Group.

5 More Silly Credit Card Mistakes Nearly Everyone Makes ...

Ever wish there was a sort of Driver’s Ed for credit cards — or even just a Complete Idiot’s Guide?

While there is no law requiring you to learn about credit cards before the training wheels come off, you can save yourself lots of headaches — and money — by reading up on some of the most common credit card mistakes that people make.

In the first article in this series, we covered some common — and costly — credit card blunders that nearly all of us make at one point or another. Here are 5 more foolish credit card mistakes that you may not realize you’re making.

Silly Mistake #6: Juggling too many credit cards If you’re one of those people who have never seen a credit card offer you don’t like, chances are that you’ve amassed a sizeable collection of credit cards. For people with excellent credit, tantalizing credit card offers abound. Not surprisingly, Americans, on average, have 3-4 credit cards, and many have more than 10.

However, applying for credit cards frequently may dent your credit score. Furthermore, it’s important to use all the credit cards that you do have. Card issuers are more likely to close or scale back credit limits on unused accounts — and that could also hurt your credit score.

At the same time, using too many credit cards at once sets you up for trouble: With payments due on numerous credit cards each month, it’s a lot easier to overlook a payment. And if you overlook a bill for more than 30 days, it will cause a lot more harm than “simply” a $25-35 late fee. It will pull down your credit score for a very long time.

How to avoid making this mistake again: Keep the number of credit cards that you use each month to three or less. If you’re concerned about credit accounts being closed or limits slashed, cycle through your credit cards so that they are used regularly (for example, every three or four months). You should also synchronize your credit card payment due dates to make it easier to keep track of when bills are due.