Learn how to get the best out of your credit card

Sat, 16 Oct, 2021 - 13:47

John Hearne

Credit cards have a split personality. Pay off your full balance on time each month and they are the cheapest form of credit. But if you miss a payment, or even just pay the minimum, you’ll end up paying the highest penalties and interest in banking.

The minimum repayment amount is sized so that it largely takes care of the interest, and doesn’t make much of a dent in the capital.

You pay it on time and they don’t hit you with any penalties, but they do charge you anything up to 26.6% on that large, rolling balance. And that’s how they make money.

If you’re struggling under a lot of credit card debt, it’s worthwhile checking out the Competition and Consumer Protection Commission’s credit card ready reckoner. This will tell you just how long it’s going to take you to pay off your card.

For example: Suppose you have a balance of €1,000 and you’re paying off €50 a month at a rate of 22.9% — which is the APR on purchases currently charged by AIB’s Mastercard and Visa card, and by Avant Money, Chill Money and An Post Money’s credit card.

At that rate — and assuming you stop using your card — you won’t have the debt paid off for two years and two months. And the total amount you’ll end up paying will be around €1,270.

If you double your repayment amount to €100, you would have the debt cleared in a year, plus you’d save yourself €150 in interest.

Switching options

You could also switch to a credit card with a lower interest rate. There are now a host of new entrants on the market, several of which offer attractive deals on balance transfers.

The best of these comes from Ulster Bank’s Black credit card. Ulster Bank is due to pull down the shutters on new applications from the end of this month, but it’s still possible to apply for a card, which will give you 0% on balance transfers for a full year. Once that grace period is up, the interest rate climbs to 13.9%. This is high, but is actually one of the lowest credit card interest rates out there.

To qualify for this card, you must be earning at least €40,000 and be over 18.

The An Post Money credit card also offers 0% on balance transfers for a full year. But once the grace period is up, an APR of 22.9% applies on purchases. This is among the highest rates charged in the Irish market.

Once you switch, you’ll have to make sure to close your old account, and when you do, you’ll have to stump up the €30 stamp duty that the Government takes annually from every credit card account. To ensure you’re not charged the same duty on your new card, ask your old provider for a letter of closure which you then forward to the new company.

Loan option

You could take out a credit union loan to pay off the card. Interest rates on credit union loans can’t be above 12.68% APR, and at the moment, the average countrywide rate is 10.59% APR.

There are plenty of people out there who are saving and carrying large credit card balances at the same time. Deposit rates are miserable at the moment; if you’ve got a couple of grand in the bank and at the same time you’re carrying a credit card debt of €1,000, even if it’s at the lowest credit card rate that’s out there at the moment (AIB CLICK visa’s 13.8%) you will still save yourself a packet by simply paying off the card.

For those struggling under a lot of credit card debt, the first step is to stop using the card. Simple, but not always easy, especially if you’re a slave to impulse purchases.

The other obvious piece of advice is to pay as much as you can each month. In addition to getting rid of the debt faster, you’ll also cut the total cost of the credit.

No harm either in simply asking your credit card provider to reduce the rate you’re paying for a certain period of time. Tell them you’re going to leave unless they do something. You’d be surprised what a little haggling can get you.

If you just can’t do without the card, try reducing the credit card limit, and don’t miss any repayments or underpay the minimum amounts. The penalties if you do are cruel, while late payments may show up in your credit history. Think about setting up a standing order or direct debit.

Cash withdrawals

The other cardinal rule is to not use the card to withdraw cash. The interest rates are high, the interest itself hits your account from the moment you take out the cash, and there’s also a cash advance fee.

AIB, for example, charges a commission of 1.5% on all cash withdrawals, with a minimum levy of €1.90. KBC charges the same. Bank of Ireland also charges 1.5% of the cash amount, with a minimum of €2.54.

Note too that if you’re using your card to fund your holiday, your credit card issuer is taking a juicy commission every time you use your card for a non-euro transaction.

AIB’s Visa for example takes 1.75% of the transaction value in Europe (non-euro countries only) and 2.75% in the rest of the world. Bank of Ireland charges a cross border handling fee of 2.25% of the transaction.

The Competition and Consumer Protection Commission also advises that if you have payment protection insurance (PPI) on your credit card, double check to see if it’s actually worth it. PPI usually only covers the minimum repayment amount for a limited period of time and is charged as a percentage of your outstanding balance, so the more you owe, the more you pay for it.

If none of these solutions work and the debt has become unmanageable, talk to the Money Advice and Budgeting Service (MABS).

Credit Cards: Who charges what

Card APR on purchases, interest on cash withdrawals, intro rate on balance transfers

AIB beMasterCard 22.9%, 19.68%, 3.83% for 12 months

AIB beVisa 22.9%, 19.68%, 3.83% for 12 months

AIB CLICK Visa 13.8%, 19.68%, none

AIB Platinum Visa 17%, 19.68%, 3.83% for 12 months

An Post Money 22.9%, 16.8%, 0% for 12 months

Avant Money One 22.9%, 16.8%, 0% for 6 months

Avant Money Reward+ 22.9%, 16.8%, 0% for 2 months

BOI Aer Card 26.6%, 21.36%, 0% for 7 months

BOI Classic Card 22.1%, 21.36%, 0% for 7 months