Get debt free with Liam Croke!


Liam Croke, author of I Am Going to Be Debt Free, responds to tweets from Liberties Press readers. 



Heard a rumour that my debt just disappears after 6 years if the bank does nothing or can't find me. Is this true?

No, this is not true. Once a loan is repaid in full or even if part of it is written off by your bank, the record of this loan is kept by the Irish Credit Bureau for a period of six years from the date that the loan is completed in full.
Depending on your actual debt, i.e. whether it is secured or unsecured, the bank has a number of options open to them whether they can find you or not that last a lot longer than six years.

Behind with my cr. card repayments & want to buy a house soon. How can I keep a good credit rating if I'm struggling to make repayments?

First of all, do a credit check on yourself. You can do this by logging on to www.icb.ie and by paying a fee of €6, they will then send you a copy of your report. It will show how your credit card company has been recording your repayments which will also tell a mortgage lender a lot about how you manage your finances.

Knowing what your credit card company is saying about you will give you a great heads up when looking for that new mortgage, and it is very unlikely that any mortgage lender will advance a cent to you if you are behind with payments or over your credit card limit. They will ask themselves: 'Well, if he/she is struggling with credit card debt, how will they manage a new mortgage?'

Therefore, what you need to do to improve your chances in securing a mortgage in the future is put off looking for that house for the time being. This might not be the advice you're looking for but I would concentrate on getting rid of that credit card debt first and then obtaining that mortgage in 12 or 18 months’ time.

Does negotiating with your bank re. your credit card interest rates really work? I'm sceptical!

It can work for some people and I have heard far too many stories for it not to be true! You can see the reasoning behind it: the credit card provider might lower the interest rate by moving people to a different type of card or by simply reducing the interest rate, in order to motivate people to pay back more. Remember, if you don’t ask you'll never know!

Where would you advise to keep your savings? Should you put the money in a bank, credit union (rates can change) or is under the bed safer?!

Personally, I would invest in an account:
   (a) where my capital is protected under the government guarantee scheme 
   (b) that I have access to my money should I need it at short notice
   (c) within an institution that is offering a decent interest rate.

I meet people who have money sitting in accounts where the interest rate is, for example, 1% and they think they are earning 1% and that their money is increasing. But, in reality, they are actually losing money and it is costing them to have their money on deposit!

When you factor in inflation at 1.2% and DIRT at 33% (next year this will effectively be 37% when they include PRSI at 4%) your real return is as follows:

Gross Rate
DIRT
Inflation
Real Return
1.0%
33%
1.2%
-0.53%


So, my advice would be to look for an account that is zero risk, has quick access to funds and a decent interest rate as well.

I owe 1,700 on my credit card but have 1,100 in savings – took a while to build up. Should I use all my savings to repay this on the card?

Ordinarily I would always advise people that it doesn't make any sense to be paying c. 18% on a debt where you have the same amount on deposit and could clear it earning just 2%. However, I would only ever recommend this course of action provided it doesn't exhaust all of your savings. And, in your case, the savings you have built up is that 'emergency fund' that you can call upon if you need money for whatever reason and will prevent you from having to borrow in the future.

So, my plan of action would be that once your savings reach say €1,500, you should then concentrate on attacking your credit card debt. You can use all of your surplus funds and the amount you were saving each month to pay more than the minimum monthly payment. You could even convert the debt into a short-term loan where the interest rate charged would be less.

How can I stave off legal collection letters for my credit card? I'm struggling to make minimum repayments.

First of all, do not ignore the problem – it will only get worse. Don’t fear that you will end up in court as there is a solution if you act quickly. 

The key thing here is to communicate with the agency that is trying to recover the debt. Let them know your situation and be very honest with them. Show them what you are earning and what your other commitments are. Give them a valid reason why, at the moment, you can’t afford any more than € x per month, even though it may be less than the minimum repayments.

They won’t want to take you to court if it is very evident that you don’t have an ability to repay them any more than you can offer them at present. They know that a judge will just find in favour of you  if you have been communicating with them and paying an amount based on your current circumstances.

Also, look at the new personal insolvency legislation (debt relief notice) which allows for the writing off of unsecured debt, i.e. credit cards, personal loans, etc., up to a maximum amount of €20,000. 

In order to qualify for this relief, you have to meet a number of conditions, such as:

  • Your net disposable monthly income is less than €60.
  • Your net assets are less than €400. (You can have a car which is not taken into account here, provided it is worth less than €1,400.)
If you meet the above criteria, your debt will be frozen for 12 months and then written off, provided your situation doesn't improve in the meantime.

Finally, don’t bottle it all up – speak with family or friends about your problem and don’t be embarrassed to ask for help.

In your book you mention cash envelopes. Do you think they really work? What about human nature being open to temptation?

Anyone who has ever used the cash envelope system, tells me it works. I have never come across a person who said it didn't! It really does ensure that your money habits behave as it prevents you from spending more than you earn. 
And yes, I agree that we will be tempted from time to time and it can be okay to give in to that temptation. There are certainly times when we deserve to splurge a bit but I always tell people that they should budget for these 'impulsive purchases' each month and build this amount into their monthly budget rather than taking it from other areas or going into the red at the end of the month. 

So, build an extra €20 or €30 each month into your budget that is set aside for the times when you do give into that temptation.

What percentage of my salary should I be paying on rent? Finding it a bit of a struggle and don't know whether this is normal for others too.

I would always suggest that whether you are renting or getting a mortgage that you should not be paying any more than 25% of your after tax net monthly income on this category. Of course the amount you pay in rent will be hugely dictated on where you want to live and 25% of your salary may not be enough for the area you wish to live in (e.g. because it is close to work, or in the city centre, etc.) but there has to be a trade-off somewhere.