Play your cards right

Switching banks could reduce credit interest costs

We are using debit cards a lot more than credit cards these days, but credit cards still have their advantages and remain popular.

According to financial literacy expert and co-founder of Moneywhizz Frank Conway, they can be useful for building a personal credit report, which is important if you need to take out a personal loan or get a mortgage at some stage.

“Also, some people say they feel more secure shopping online using a credit card than a debit card as the credit card represents someone else’s money, where a debit card links to one’s own funds,” he said. “While both offer the same general fraud protection benefits, some people prefer the idea of credit cards not being linked to their current account.”

Of course, the main thing to be aware of with credit cards is the cripplingly high interest rates that apply if you don’t pay off your bill in full every month and before the due date, Mr Conway said.

If you have built up some credit card debt, switching card providers can help.

Switching to a provider with a lower interest rate than your current card or one that doesn’t charge any interest (or else a very low rate) on balance transfers for a limited period (typically three to 12 months) can be a good way to save you money on your interest payments and get a handle on things.

For instance, AIB’s Click Visa credit card has an interest rate of 13.8pc APR, which is by some way the lowest among all the cards available, while Ulster Bank’s Black Mastercard offers the next lowest rate of 16.1pc APR but, unlike the AIB card, offers 0pc finance on balance transfers for 12 months compared to six months for other cards.

“This interest-free grace period can provide an ideal breathing space for the card user to pay off their outstanding balance quickly,” Mr Conway said.

But if you have some debt accumulated and you want to take advantage of zero interest on balance transfers, you will need to check if you qualify for a new card. For instance, you’ll need a minimum annual income of €40,000 to qualify for the Ulster Bank Black Mastercard.

If you have serious card debt, however, switching providers isn’t going to help much, but you can ask your bank about consolidating or converting it into a loan.

“Here, it is important to ensure the rate of interest is highly competitive and also, the term of the new loan is as short as possible to keep the total cost of interest at a minimum,” Mr Conway said.

One option in this regard is to switch to a provider that offers an ‘instalment plans’ feature, which acts like a personal loan through your credit card. This allows you to pay in fixed monthly instalments at a low rate of interest (less than 10pc APR) for purchases over €500.

This relatively new feature was once only offered by Bank of Ireland on its Mastercard plans, but KBC offers it on their Mastercard plans, too. Ulster Bank also offers these plans, but you need to be an existing credit card customer.

You could also consider using pre-paid cards, whereby you load the card with funds that you can use to pay bills, make purchases and withdraw cash.

There are a range of tools available to help you compare card products, including the CPCC (Competition and Consumer Protection Commission) website, Switcher.ie and Bonkers.ie.

In general, paying off as much of your card bill as you can each month until the debt is clear should be the main strategy for managing your card usage. Even paying the minimum amount is better than missing repayments altogether, as it may affect your credit rating and you may have trouble accessing credit or even getting a mortgage in the future.

If you can’t, Mr Conway advises that you repay the credit card debt in the shortest period of time.

“So, if they carried a balance of €400 after the Christmas period into 2021, they should target to repay the full debt over four months; this will keep the total cost of interest to a minimum,” he said.

“Additionally, where they are making monthly repayments over several months, it is important they make those payments ahead of the due date, and there can be ‘late charges’ applied to the outstanding balance if the monthly repayment is received after the due date.”

Recent figures for the Central Bank show that credit card spending – along with debit card spending – in general dropped off sharply after the first lockdown but then recovered during last summer and has remained fairly consistent.

Not surprisingly, the use of cards for online purchasing is up sharply.

At the same time, given that spending opportunities are limited, more people are choosing to use debit cards because they have more money in the bank.

If you want to wean yourself off using credit cards for online purchases, for the future you might consider not clicking the box on payment pages that allows you to ‘save’ or ‘store’ your credit card details for the next time you purchase.