EVER FIND YOURSELF a little baffled by your credit card? Or unsure whether you should apply for one at all?
Choosing the right credit card can be the difference between a healthy bank balance and an overwhelming debt.
We spoke to Managing Director of Investwise David Quinn for the essential questions you should ask about your credit card.
Although any other benefits and frills might distract from this, the single most important thing about a credit card is what the interest rate is, says Quinn:
The real key is the interest rate. If you can get a six month interest free period, it’s a good reason to switch. Gaining frequent flyer miles or discounts with particular shopping outlets are of no real value if the interest rate isn’t good.
Want to have a look at who currently offers 0% interest? Switchyourbank.ie has a handy comparison tool here which includes six different 0% options.
The cardinal rule when it comes to credit cards, is don’t be tempted to have multiple ones, says Quinn:
There’s absolutely no need to have more than one, especially if you’re going to build up additional balances. There’s always that shopaholic inside us that wants to buy something and needs immediate gratification if the temptation is there.
Although sitting down with your partner and examining your charges might seem like the best option, it can be worth getting a third party’s opinion, says Quinn:
Generally the best thing to do is to sit down with someone independent like a family member, friend or financial advisor to form two plans a) how to cut down spending and b) how to clear the debt ASAP.
A third set of eyes can spot unnecessary costs that you may not be aware of, and even save your relationship from conflict, says Quinn:
Sometimes it can take an external person to pick up on regular takeaways or extravagant holidays that won’t be obvious to a couple. They can also mediate on the solution, which takes the emotion out of it and makes it more practical.
“Bad habits around your credit card absolutely will affect your mortgage application”, says Quinn. As a bank will always want to see six months of ‘clean’ bank statements, you need to be careful around the debt associated with credit cards:
If they see a payment going to a credit card and see that there’s an ongoing balance unpaid each month, it can be a huge red flag. It causes no problem if it’s being cleared every month but an uncleared, lingering balance can be a disaster.
Put simply, it can raise queries if you don’t take measures before you apply for a mortgage, says Quinn: “you don’t want to give them an excuse to say no, so it might be a quicker option to get a small Credit Union loan and get out of it as soon as possible.”
If your credit limit seems unusually high or the minimum payment seems questionably low, it’s worth looking at picking figures that suit your needs, says Quinn:
Don’t automatically go with the bank’s default settings – the potential for debt needs to be set as low as possible. Keep the overall pay balance as low as possible and the minimum payment to the highest that you can afford – you can raise this from 5% to 30% for example.
The same goes for limits, which when set a lot higher can be more tempting for people to be able to run into debt. As Quinn explains, the right parameters “automatically put a restriction on what you spend”:
Some people need a €20,000 limit because they might have a lot of work experiences – but if you’re just using it for concert tickets, set it at €500. Don’t let the bank set this at €3,000-€4,000. I would always suggest people make a deliberate decision.
When it comes to credit cards, simplicity is key, says Quinn, who suggests to take a look at the credit card options in your current bank:
I would always encourage people to consider the credit card options in the same bank they’re in as transfers are a lot quicker and easier and the convenience of being able to pay it off has value.
On that note, Quinn alerts that it’s worth your while to take advantage of banking apps to stay on top of your bills:
It’s important to have convenience of access – you need to be able to see your charges easily on your phone screen. If you can’t, it’s easier to avoid credit card bills and not pay them off.
Think you’d be under less financial pressure if you switched your credit card? Switchyourbank.ie has all of the resources you’ll need to decide if it’s the right option for you, along with a comparison table of all the current rates for Irish customers.
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