Why paying off your credit card rather than your mortgage is stupid

It’s a common debate in debt that people prioritise in certain ways based on certain behaviours. A common one being that it is rational to pay off a credit card because that is what buys the shopping or puts fuel in the car.

The belief being that a credit card provides liquidity when needed, but in paying off this debtor first it brushes over two key facts.

1: If you told the credit card holder to go and jump for their money you’d be instantly better off by whatever you owed them, we regularly see settlements done for 10c on the Euro. This saving (assuming it equates to the missed mortgage payment – which is a leap of faith at best) could be used to fund the following month or two for fuel/groceries, and that isn’t to say you couldn’t repeat this process with a mortgage too as a source of financing if you had to, but doing it first is a mistake.

The first rule in personal finance is about prioritisation and while we regularly tell people to burn …

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The credit bureau they don’t tell you about, an ‘internal’ ICB at Irish banks

Something which isn’t widely known is the way that banks keep internal credit scores. This isn’t the bit they report to the ICB which is well regulated and has various rules regarding how it is dealt with, this it the kind of thing they do for themselves which is not shared information.

Recently we had a client declined from a bank for something on their credit history, we searched and came up with nothing then found out via another route that there had been something with this bank 13 years ago when the person was still a student.

This person had taken out mortgages since then and had a perfect credit history, nothing went awry (the only issue was back when they were in college), but that old event came back to haunt them.

Big deal? Probably not, but then think about the potential fallout for people who opt for personal insolvency? What if the banks do the same to them? Where they are not locked out officially from financial services but they are in fact an un-creditworthy client in …

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2008: When banks independently all decided to make a similar decision

This week five years ago is when independent mortgage advisors were in the middle of getting some harsh news, some lenders were pulling out of the market completely, others were informing us of 50% cuts to procurement fees.

Fair or unfair? In light of things like Croke Park it would be seen as totally unfair, you’d never get any other industry that takes a 50% hit like this as fast (and then there is the separate issue of lending dropping 95% on top of the 50% reduction).

Brokerage has already been down the path the public sector are on. I recall sitting across the table from PTsb chief David Guinane who in late 2007 called in the broker bodies and informed them that they were getting a reduction that they might not be happy about, but that this was not something we could negotiate.

There was talk in brokerage of boycotting both them and Irish Life in return, and while we were still debating about what to do all of the other …

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Banks starting to set targest for ‘going legal’

(Original article appeared in the Irish Sun)

For thousands of property investors the time has finally come to assume the position, AIB have directed the debt collections teams in both AIB and EBS to have at least 10% of their arrears cases ‘gone legal’ by the end of April The Irish Sun has learned.

This is a massive departure from the idea of ‘forbearance’ which reigned supreme in the recent past. Customers will now be informed that there is no option for ‘interest only’ something that up to now has kept huge swathes of troubled borrowers afloat.

Senior sources in AIB have said that ‘there are no targets, there will never be any targets’ but the collectors on the coal face of this are saying the exact opposite.

The bank will honour existing interest only agreements, but any new applications for paying only interest will have to be proven to be only a short term ‘stop gap’ measure, and those who have already availed of a 12 month interest only period will be refused subsequent extensions which might provide vital …

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Philanthropic banks? Hardly…

The banks do manage to get some positive PR even in the current anti-banking environment. Yesterday’s Independent carried a story by Charlie Weston about banks stating that they will give a ‘cut price rate’ to borrowers who lose their homes.

This hinges on the difference between secured and unsecured lending rates, typically an unsecured loan (where the bank holds no asset which backs it up) will attract rates of 10% and more, but mortgages can be as low as 1.5% depending on what rate you got at the outset.

AIB and EBS are going to let borrowers who hand back their home pay back any outstanding balance at their mortgage rate. What we don’t seem to know (because through non-disclosure agreements or absence of short-sales) is whether this would have been the case anyway.

There is certainly a legal challenge in the making for seeking that a loan which becomes unsecured having been secured remains on similar conditions that would have existed had it been performing. There is (was) penalty …

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Dear Banks, leave me alone… How to speak to them

In the process of negotiating with banks many of our customers feel various things, like intimidation, fear, confusion and anger. In trying to get a lender to give a simple and straight forward response we find that it helps to use a certain language or nomenclature in letters and replies.

The simple truth is that they tend to exert authority if you give them this authority, but if you give them the authority with the express requirement that it forces them to make a painful decision should they act upon it. The letter below is a sample that we have used with a few people who have investment properties and it seems to get a decent result.

Don’t use it until such time as you have filled in your Standard Financial Statement (SFS), the end result you are looking for with a letter like this is to get the lender to accept your rent as full settlement of your account until …

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