ConsumerValue: Financial Services
2. Credit Cards
Credit cards are a convenient and flexible way to pay for things without having to carry cash.
If you use them wisely, credit cards can be used as a cost effective means of managing your finances. However, their ease of use means that if you’re not careful, you can get in to debt very quickly.
This section provides tips and suggestions on how to best get value from your credit card.
How it works: the basics
A credit card typically operates on the basis that you have a fixed “credit limit” up to which you may spend.
You will usually receive a monthly statement of your expenditure. This statement will indicate a date by which you need to pay off the amount outstanding before interest begins to accrue.
You have the option to pay off all of the amount, thereby avoiding any interest charges, or to pay off just a minimum monthly balance or an amount greater than the mimimum balance but not the whole amount.
In this case, interest will start to accrue on any outstanding balance. Detailed and specific rules are applied in the calculation of interest and in the application of monies you do pay into your account against money outstanding.
Interest payments
The amount of interest you are charged depends on the Annual Percentage Rate (APR) on your card.
Typically, the interest rate ranges from 11% to 19%, well above that charged on overdrafts and personal loans. Always shop around for the lowest APRand the card with the longest interest-free period.
We have a credit card cost comparison tool on our itsyourmoney.ie website which you can use to check current rates of the main providers.
You will not be charged any interest if you pay your bill in full before the due date. This is called the 'interest-free period'.
Check with your provider first to see how interest is charged on your card. Allow at least four working days for your payment to reach your account.
Pay off as much as you can afford every month so that you reduce your debt as quickly as possible and don’t use your card until you have cleared the debt. If you pay off just a part of the bill, you may be charged interest on all your purchases from the day you bought them.
For example, if your statement shows you owe €1,000 and you pay off €900 by the due date, most providers will charge you interest on the full €1,000 until the date your payment reaches your account.
After that date, you will be charged interest on the €100 that remains unpaid and on any new purchases you make.
Using your card to withdraw cash
Try not to use your credit card to withdraw cash, as interest is usually charged immediately, making it a very very expensive means of financing this particular type of credit.
If you must draw cash against your credit card, avoid multiple small withdrawals, as high transaction charges can apply.
If you take out cash in euro in the Eurozone area, the same cash advance fees apply as in Ireland. If your withdrawal is in another currency, expect to pay a currency-conversion fee as well as the standard cash advance fee.
Switching your credit card
You should consider switching your credit card provider if you can get better value for money elsewhere.
Use the credit card cost comparison tool on our itsyourmoney.ie website to check current rates of the main providers.
If you have decided to switch to a new credit card provider, you should transfer or pay off any balance on your previous card and close your previous credit card account.
If you are considering transferring your balance to a new card, make sure to find out:
- How long the new card's low rate will apply
- Whether the low rate applies only to the transferred balance or also to new purchases and cash withdrawals you make during the offer period
- Whether you get an interest-free period on new purchases during the offer period and
- What the rate will be after the introductory offer ends
Credit card stamp duty and switching
If you have already paid €30 stamp duty in the current tax year (2 April in one year to 1 April in the next), your old credit card provider will issue a letter of closure to you when your account is closed.
This letter confirms that you have paid €30 stamp duty. Send this letter to your new provider to make sure that you are not charged stamp duty again within the same year.
Remember, if you don’t close your old account, then you will be charged €30 stamp duty on both accounts.