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Plastic fantastic? Being smart when using your credit cards

Irish News of the World

Sunday May 31st, 2009

Diarmuid MacShane

Plastic fantastic? Being smart when using your credit cards

Do you remember the advertising for your “flexible friend”? That was how Access (now Mastercard) credit cards were advertised in the 1980’s. Credit cards are fantastic in making it easy to spend our money – ore more particularly other peoples money – they can also be a severe danger to our personal financial health if we let our use of them get out of control.

The Central Bank said that in February new spending on credit cards was only €766m which was the lowest in 3 years. However, year-on-year spending still increased, but by only 3.3% – a value that was normally about 10%.

On the other hand, MABS (the Money Advice and Budgeting Service) said that consumer debt in Ireland is a growing problem. They have reported that already this year, more than half of those calling their advice lines where having problems with repaying credit card debt, as well as personal loans and overdrafts. This was a 25% jump in just 12 months.

So, playing your cards right by following the top tips below will mean that you can get all the benefits with none of the troubles when using your credit card.

Don’t break the rules

The key thing to remember about using a credit card is that any time you use your card outside the basic rules of your credit agreement you’re going to be charged extra by your provider.

If you go over your credit card limit, you’ll be charged between €6.25 and €12.70 each time.

Make sure you pay your bills on time or else you’ll be hit with the late payment charges that can range from €6.35 to €15.24.

And if you make a payment and it bounces (you don’t have enough cash in your bank account to pay the credit card debt), then you’ll be charged an “unpaid item fee” ranging from €3 to €19.05.

It’s worth remembering that if you end up in difficulties, these charges could end up being charged to you each month until you get things under control again.

Looking after your flexible friend

There are some simple things that you can do to make sure you don’t get hit with any of these fees – in a worst case scenario fees that could cost you over €500 per year.

The first simplest trick is to pay your bill by direct debit. This will mean that you’re always going to get your payment in to the credit card company on time.

To make sure that you always have enough money to pay your bill, you could avail of the text message service provided by some banks that lets you know when you bank balance drops to a certain level.

Lack of interest

Obviously the best way to save yourself cash on credit card interest is to make sure you pay your credit card bill in full when it’s due ever month.

If you can’t, then the next best thing is to be on the credit card with the lowest interest rate. The AIB Click card has the best rate in the market at the moment at 8.5%. This compares to the worst in the market of 17.9% on the Ulster Bank Classic card.

Wherever possible you should avoid withdrawing cash from your credit card. Interest on cash advances is anything from 5% to 7% higher, with the highest rate being the AIB Platinum card charging 23.4%.

And that doesn’t include the 1.5% that each credit card provider will charge you on each cash amount that you withdraw. Which they’ll charge you interest on as well.

Minimum Repayments

Unless you’re “snowballing” your debts which I wrote about in the past, you should never just restrict yourself to paying the minimum repayments on your credit card.

Martin Lewis, the UK Money Saving Expert, has a minimum repayments calculator on his website to show just how long you’ll be stuck in debt if do.

As an example, say you have €5000 on your credit card at 14.5% with a 2% (or €10) minimum repayment amount. If you only pay the minimum amount, it would take you 28 years and over €6000 in interest to clear the debt.

If you pay the minimum amount in the first month – about €100 – but then pay that amount every month, rather than the 2% minimum, you could save yourself nearly €3000 in interest.

Pay per use

Of course, one of the most frustrating aspects of using a credit card in Ireland these days is that it actually costs us to use one. The most infamous companies credit card surcharges are found when buying tickets for travel.

One trick that does work to avoid these surcharges is to buy vouchers from the same companies, and then using the vouchers to pay for your travel tickets – this works particularly well on the Ryanair website.

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Getting around paying the Ryanair credit card surcharge?

There’s an e-mail doing the rounds at the moment with some advice as to how you might be able to get around the Ryanair credit card surcharge fee which is normally €5 per passenger per flight – €10 return. This is what I received earlier this week:

Just a tip for those of you who use Ryanair often. The airline charges 10 euro per person when booking flights by credit/debit card . There is a way around it though.

If you buy Ryanair vouchers on the website (very easy process) and then use the vouchers to buy your flights, there’s no extra charges for using your card.

When you buy the vouchers – You get the code immediately and then you just use that to pay for your flights therefore dodging the extra charges for use of debit/credit card.

You’ll have read previously that we’re not big fans of vouchers here at ValueIreland.com, so we checked this out a bit more.

This tip was mentioned on the UK MoneySavingsExpert forum before Christmas last year with no negative comments.

However, during 2008 there were a number of bad reports about consumer problems trying to redeem Ryanair vouchers – Pricewatch and Irish Independent – but that seemed mainly to do with the fact that it cost €1.75 per minute to call a number to actually redeem your vouchers. This is no longer now the case as you can redeem your vouchers online as part of the normal booking process.

So far so good then, until you read this account of problems in January of this year amongst readers of AskAboutMoney.com when trying to redeem vouchers.

So, some positives and some negatives. If you think it’ll be worth your while availing of this loophole, the you should at least finally check out the Terms and Conditions associated with the Ryanair vouchers – available here.

And after that, just remember, “buyer beware”.

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