In MABS, we receive a lot of great questions about money matters and tackling debt. Questions that we know many people want to ask but don’t know who to ask or where to start. MABS is here to help.
The focus of this week’s blog is Credit Cards. At MABS, we advise not to use credit cards if possible as they are a high-cost form of credit. However, we are aware that many people have them but don’t understand how they work.
We receive many questions regarding Credit Cards, some of the most popular include:
What is a Credit Card?
A credit card is a plastic card used in place of a debit card or cash to make purchases. When you apply for a credit card, the credit card provider will set the limit of credit you can borrow. When you make purchases on a credit card, the payment does not come out of your bank. Instead, you will get a bill for the purchases each month.
If you decide to use a credit card, it is advised that you pay the full outstanding balance on the bill by the payment date. Otherwise, you will be charged interest on the balance. There will be a minimum payment listed on your bill, which we will cover later in the blog.
Pre-paid Credit Cards
There are also pre-paid credit cards that can be used in the same way as a credit or debit card. These can be topped up with money and can be useful in situations where cash isn’t an option. Still, you want the security of knowing it’s already paid. Pre-paid credit cards can be expensive for withdrawing cash from an ATM, and some have monthly maintenance fees.
What’s the difference between a debit card and a credit card?
Debit cards are linked directly to your current bank account. This means that when you make a purchase, it comes out of your bank account almost in real-time. With a credit card, the amount of credit available reduces. You pay the outstanding balance (the amount you’ve spent) back at a later date – usually when the bill comes in.
What is APR & what does interest mean?
APR stands for Annual Percentage Rate or sometimes seen as APRC, which means Annual Percentage Rate Charged. APR is the interest rate charged on the credit card balance if the balance is not paid in full (before the payment date). Interest is the cost of the credit charged by the credit card provider. Interest rates can vary from 13.8%* to 22.9%* in Ireland.
Some credit card providers will offer a 0% rate. However, this is typically for a limited period, for example, 6 months. It can be used as an incentive to switch from one provider to another. It is important to read the terms and conditions to know how much you will be charged once the 0% rate period is over.
If you pay your bill in full before the payment date, this is known as the “interest-free period“ and is generally up to fifty-six (56) days. Be aware of your terms and conditions, though, as this does not apply to cash withdrawals in most cases. You could be charged interest on cash withdrawals immediately.
Withdrawing cash on your credit card is very expensive. You can be charged a transaction fee for taking out the cash in the first place, on top of the interest charged for the cash you’ve taken out. The rate of interest charged and transaction fees vary significantly between providers. Always check your terms and conditions so if you do find yourself in an emergency and need to withdraw cash from your credit card, you know how much it will cost you.
What is a minimum payment?
A minimum payment is an amount the credit card provider lists on your monthly bill as the minimum required payment. This varies between 2%-5% of the balance due. It is advised that you pay off the balance in full, so you will not be charged interest. However, if you cannot make a full payment, you must pay at least the minimum payment.
Here’s how long it could potentially take to pay off your credit card by only paying the minimum payment each month. Let’s say you have a balance of €1000 on your credit card, and you do no more spending on the card until you clear the balance. How long do you think it would take to clear it? The answer may shock you.
|Balance on Credit Card
|Minimum payment (monthly)
|Length of time to clear the balance
|7 years, 11 months
It would take 7 years and 11 months just to clear the balance with interest. It really makes you think, doesn’t it? We used the CCPC Clearing your Credit Card Calculator to illustrate this example.
What happens if I miss a payment or I’m late paying?
If you don’t make the minimum payment by the due date listed on your credit card bill, you can be charged full interest on the balance. Often you can be charged late fees on top of the interest. In addition, this late payment will be reflected on your credit report.
Suppose you are having difficulty making repayments to your credit card balance. In that case, you should speak with your credit card provider about your situation. If you don’t feel you can talk to your credit card provider, contact MABS, we can help. You can contact us on WhatsApp, by calling the Helpline or by contacting your local office.
What transferring a balance means and if it is right for you.
Perhaps your bank is leaving Ireland or will be soon, and you need to find a new credit card provider? If so the CCPC offer a comparison tool for you to see who is offering the best rates. Credit Card Comparison
Some people feel that transferring a balance is like switching your electricity or gas supplier. You will move the money you owe to a different credit card provider. This might be done to move to a lower interest rate to make repayments more affordable.
Some credit card providers offer a 0% interest period (6-12 months) and 0% on transferring a balance, meaning you get a bit of breathing room on the interest to pay down the balance. You can talk to your current credit card provider about a lower interest rate or a 0% interest period, however, this will be taken on a case-by-case basis.
Do’s and Don’t’s of using credit cards
- Pay your bill on time to avoid late fees and damage to your credit score
- Monitor your account regularly for fraudulent activity or charges
- Use your card for purchases you can afford to pay off in full each month
- Consider reducing your credit limit to something that you can afford to repay each month
- Be mindful of what you are using your card for. If it is for everyday expenses such as food, perhaps you need to review your budget to see what changes you can make so that you do not have to buy food on credit.
If you feel you cannot manage your day to day living expenses each week without using your credit card, perhaps MABS might be able to support you in budgeting or in making arrangements with your creditors.
- Make only the minimum payment each month, as this can lead to high interest charges and a longer time to pay off your debt
- Use your credit card for cash advances, as these often come with high fees and interest rates
- Share your credit card information with anyone you don’t trust or give it out in response to unsolicited phone calls or emails.
If you do have a credit card with an outstanding balance, we would advise that you try to pay it off as soon as possible. If you don’t know where to start and would like to speak with a MABS adviser, call 0818 07 2000.
Have you got a money or debt advice question that you’d like answered? Get in touch, and we’ll give you a clear and accurate answer to your money and debt advice questions. Follow @MABSinfo on Twitter, Facebook, and Instagram for further updates.
At MABS, we advise not to use credit cards if possible as they are a high-cost form of credit. Still, we are aware that many people have them but don’t understand how they work. If you do have a credit card with an outstanding balance, we would advise that you try to pay it off as soon as possible.
If you don’t know where to start and would like to speak with a MABS adviser, call 0818 07 2000, Monday to Friday, from 9am to 8pm or find the contact details for your local office here.
Note: We welcome references to and use of the content in this blog. However, please reference MABS and link said content if you choose to do so.