Credit card spending has been on the decline here for some time thanks to a big shift towards the use of debit cards, but the temptation to use a credit card to get through the Christmas season is too hard to resist. a lot.
Figures from the central bank show that while the value of all debit card transactions (including ATM transactions) is now about five times that of credit cards, credit cards have accounted for 45% of all point-of-sale purchases during the third quarter of 2018. The numbers also show that credit card spending is growing again, but not as fast as debit cards.
“The biggest mistake people make with credit cards this Christmas is getting emotional about spending,” said Frank Conway, financial literacy expert and founder of Money Whizz. Some will plan their spending and budget accordingly, but for others, “the big problem they face is not always fully appreciating that credit cards are loans … and they can be expensive depending the way they use them … or not. Use them. ”
Credit cards can actually be great value as long as the outstanding balance is paid off before the due date, he says. Most credit cards offer up to 56 days of interest-free credit, and as long as you pay off your balance in full and on time each month, you won’t be charged interest.
“Otherwise, interest charges and even penalties can become a cost on top of the initial balance, and that’s where the huge cost of compound interest comes in.”
So if you’re sure you need to build your courage before looking at your credit card bill this month, what can you do to reduce the financial hangover?
With credit card interest rates ranging from 14% to 23%, paying off as much as you can each month until the debt is settled should be the main strategy, but even paying the minimum amount is better than missing repayments, as this can affect your credit rating. and you might have trouble accessing credit or even getting a mortgage in the future, says Daragh Cassidy of price comparison site bonkers.ie.
If you have more than one credit card or loan, you should pay off the debt with the highest interest rate first, because that’s what’s costing you the most.
“You can also choose to pay off the debt with the lowest balance first, as that will completely wipe out the debt for you and help you psychologically,” says Cassidy. “But that only really works if there’s a small balance that you can get rid of quickly – otherwise you pay off the cheapest debt and keep the expensive debt.”
Don’t be afraid to use your savings to meet debt as well, especially since bank savings account rates are very high. “It’s amazing how many people in Ireland are in debt when they also have savings,” Cassidy says.
“So if you have money saved in the bank or the credit union, consider using it instead to pay off your debt as quickly as possible. The interest you will be charged on your debt will be much higher than the interest you will pay. earn on your savings. “
Switching to a credit card provider with a lower rate than your current card can be a good way to save you money on your interest payments and get things under control if you’re trying to pay off a large amount. credit card debt, but Conway cautions that there isn’t always a guarantee that you can qualify for a new card.
“But if you change, make sure it’s not just for the introductory 0pc offer, as some of the credit card offers on the CCPC (Competition and Consumer Protection) website charge up to 22pc. APR, so if you can’t afford to pay off the balance, then the card could cost the user a lot more if they only make the minimum monthly payment, ”he says.
The card with the lowest rate is the AIB Click Visa card at 13.8 pc APR, although there is no possibility to transfer balances from another card, nor any introductory offer. The card with the next lowest rate, AIB’s Platinum, offers 3.83pc on balance transfers and purchases for 12 months, while KBC’s Cash Reward offers 18.25pcAPR and 0pc on balance transfers.
Ulster Bank, Bank of Ireland, Avantcard and Permanent TSB make up the rest of the ranking based on interest rates, which range from 19.2pc to 22.7pcAPR, with AIB’s Be Visa card leading the way for the highest rate. raised to 22.9pcAPR, with 3.83pc on balance transfers and purchases for 12 months.
Conway adds that with rates like these, it can be cheaper to take out a debt consolidation or term loan and pay it off over a period of one to two years at a lower interest rate, but If you don’t qualify for a debt consolidation loan with your bank or credit union, then aiming to pay off the card debt in six or 12 months would be the next best strategy.
But what should the bill be before considering a loan to pay it off? Cassidy says it’s possible to take a loan for as little as $ 1,000 from most banks and pay it off in as short as six months, if you want.
“Obtaining a loan, however small, should absolutely be considered before choosing to put anything on the credit card. In general, for anything over $ 1,000 that you’re going to pay off over six months or more, you should consider a personal loan or talk to your local credit union, ”he says.
It should be noted that all Bank of Ireland Mastercard credit cards (except the student version) have a ‘installment plan’ feature which acts as a personal loan through your credit card.
The feature allows you to transfer a credit card purchase over $ 500 to a separate lower interest rate of 6.9 pc APR (a lower rate than most conventional personal loans) and pay it off in 12 equal monthly payments. It is currently the only bank to offer this functionality in Ireland.
You can also consider using prepaid cards, where you load the card with funds that you can use to pay bills, make purchases, and withdraw money.
If you frequently use a credit card for online purchases, you may in the future consider not clicking the box on payment pages that allows you to “save” or “store” your credit card details. credit for your next purchase.
“These are the basics of smart shopping,” says Conway. “The reality is that most people want convenience, but research repeatedly shows that the delay process helps people consider their purchasing needs. Some research in Sweden hints at the benefits of delayed purchases and certainly Some of the comments I’ve seen from Sweden is that transparent or contactless buying makes money management more difficult.
“So stop and take a step back to keep your balance in the dark,” he says.
How to change … credit card
STEP 1 Check out the competition on price comparison sites or on the website of the Competition and Consumer Protection Commission (CCPC.ie). This is especially important if you have a balance to transfer.
2ND STEP Apply for a new credit card online or at a branch. You must be over 18 and have a minimum annual income, often set at € 16,000 per year. You will need the following information: your banking information, current credit card, loans and savings accounts, mortgage (if applicable), checking account, and income.
STEP 3 Close your old credit card account. Cancel any withdrawals from your old account. Write to your old credit card company to request that the account be closed and your card canceled. If you paid stamp duty in 2018, they will send a confirmation that your account is closed and you can send it to your new credit card company to avoid being billed twice in a year. And don’t forget to cut out your old card. The savings detailed below are based on clearing a balance of € 2,500 to € 250 per month.