Many people will face severe financial difficulties in the new year due to the high levels of borrowing over Christmas, it was warned today.
Liam O'Dwyer, chief executive of the Irish League of Credit Unions, said personal borrowing had soared this year with personal debt exceeding disposable income by 33 per cent.
"Borrowing for current expenditure on consumer items, Christmas presents and luxuries carries hidden dangers of over-extending your finances and of putting further pressure on individual and family budgets.
Liam O'Dwyer
," Mr O'Dwyer said.
He said credit unions often saw the personal difficulties caused by people relying on credit to survive.
"Prudent borrowing for sensible expenditure - such as home improvements - can be worthwhile so long as borrowers can realistically cope with the relevant repayment terms and interest rates," he said.
The average Irish household is due to spend €1,300 this Christmas - nearly double the amount spent in other European countries.
Some of the recommendations from the credit union for Christmas shoppers included people should make sure to budget, use cash rather than credit cards, stick to a list of gifts and wait until the post-Christmas sales to buy clothes.
Using credit cards, which carry high interest rates, was highlighted as a particularly dangerous way of accessing credit.
"With Christmas only days away it is important even now to plan how much you're going to spend and more importantly how much you can afford to spend. Keeping to a budget is key. If you, like many, are planning to use the credit card to fund your Christmas spend, pay off the balance immediately after Christmas so that you don't incur the quite substantial interest rate charges," he said.
Mr O'Dwyer said anyone with credit card debt should approach their local credit union to work out the cheapest way to deal with the problem.
"Credit Unions offer affordable, practical solutions with flexible repayment terms to people with borrowing requirements," Mr O'Dwyer said.
The credit union boss urged commercial institutions to engage in more responsible lending.
"It is evident that many commercially-driven financial institutions are pushing - or exceeding - the limits of prudent lending with their profit-driven agendas," he said. "They are simply not having due regard to the problems which may arise for borrowers later on."
Mr O'Dwyer said the promotion of cheque-book mortgages and equity-release schemes could lead consumers into a false sense of security but they end up repaying the money for a longer period of time and pay more.
"Credit unions lead the way in responsible lending," he said, commending the Financial Regulator for curbing banks from making offers of unsolicited pre-approved credit.
Mr O'Dwyer said this move would stop consumers being unfairly pressured by some financial providers into spending money they do not have.
PA