Fewer players left standing in the credit card market
Pick a card (but not just any card): even if you don't rack up cash debts on your credit card, you will be charged for using it at the ATM and perhaps when you are abroad. photograph: david malan
Different providers offer varying credit card rates, with different costs hitting you overseas. But is the debit card taking over?
As banks inch up the cost of their services, everything, from bank charges, to mortgages rates, to credit cards, are being hit. So if you are in the market for a new credit card, or are looking to incur as little expense as possible on the one you already possess, what do you need to know?
First, if you are in the market for a new card, you are likely to find it difficult. With the Personal Insolvency Act likely to kick into gear later this year, credit card operators are reluctant to offer unsecured debt, which may end up being written off.
Moreover MBNA, which typically had some of the best rates on the market and was perhaps more welcoming to new customers than other card operators, is out of action at the moment.
It was sold by Bank of America last year to US private equity outfit Apollo Global Management. Now the US firm is in the process of amalgamating it with the Spanish arm of MBNA, which it also acquired from Bank of America. As a result, it is in the process of transferring the administration of Irish customer accounts to a new company, Avant Tarjeta, and is not open to new business while it does so.
The net effect is that you may not be in a position to shop around for the best rate, but it’s worth trying to.
The best rate on the market at the moment is AIB’s Click rate, which has an APR of just 13.6 per cent, compared with a rate of 22.6 per cent for the same bank’s “be” card. If you let debts build up, then this higher rate will hurt.
But credit cards are not just about headline interest rates. They also come with a range of fees and charges, which, if you’re not aware of, can bite.
Take, for example, the interest rate charged on cash withdrawals. The rate of interest charged on AIB’s Click card jumps to 19.68 per cent for cash withdrawals, rising to as much as 21.36 per cent at Bank of Ireland. And that’s not the only charge. Even if you don’t rack up cash debts on your card, you will be charged for using your card at the ATM. For example, a cash advance fee of 1.5 per cent, or a minimum of €2.54, applies for Bank of Ireland’s Clear credit card.
The solution to that is to keep your card in credit, but if you go on your holidays to a non-euro destination, even that won’t save you from charges. Bank of Ireland’s aforementioned card applies a 1.75 per cent “cross-border handling fee”, regardless of whether or not your account is in credit. This fee rises to 2 per cent at Ulster Bank.
Other possible charges that might be levied on you include a late payment fee (€7 for AIB’s platinum card); an over credit card limit fee (€8.50 at Ulster Bank); or an unpaid item fee (€10 at Danske Bank).
On the plus side, as more and more of us move to Visa debit cards, the case for using a credit card may diminish.
After all, with Visa debit you can shop till you drop online, use it for purchases in foreign countries, and for any payments you may need to make over the phone. So why bother with a card that will cost you so much if you miss repayments?
Perhaps the answer lies in its monicker of “flexible friend”. As debit cards can only be used for payments that you have the cash to cover the cost of, they offer no flexibility at times when you might find yourself low on cash, or when you have to cover an unexpected large payment. In this regard, it’s hard to beat the security of having a credit card in your wallet.
Facing a credit card crunch? Weigh up your options
If you’re stuck with a sizeable credit card bill and no easy answer to paying it off, it’s worth taking some time to consider your options.
In the short term, the quickest solution is to transfer your balance to a card that charges lower rates of interest.
In the past, it was easy enough to find a credit card provider that offered an introductory APR of 0 per cent for up to a year. Now, however, the only provider on the market that is doing so is Permanent TSB, which offers 0 per cent for six months, rising to as much as 19.1 per cent thereafter. Other options include AIB, which has a rate of 3.83 per cent for a year, and Ulster Bank, which offers 3.9 per cent.
While it might take some effort to convince another credit card provider to take on your debt, the benefits of doing so can be significant.
For example, say you have €5,000 in outstanding debt on a credit card which is charging you interest at 19 per cent. If you make the minimum payment of about €250 a month, it will take you more than two years to pay back at a cost of €1,000 in interest. If you switch from such a card to Permanent TSB’s 0 per cent offer and keep repayments steady, you could cut the cost and term of your debt.
If your credit card bill is insurmountable, then it might be worthwhile considering whether or not the forthcoming implementation of the Insolvency Act may help you.
Under the Bill, enacted in December, a debt relief certificate may be issued for up to €20,000 in credit card debt.
This means the debt will be granted a one-year moratorium following which, if the debtor still cannot pay, the debt will be written off.
However, the terms are very restrictive, as only those with assets of less than €400 and a net monthly disposable income of €60 or less can qualify.
According to Andrea Gleasure, a solicitor with Lynch Solicitors, the scheme is not yet operational but should be over the coming months once the Insolvency Service, the umbrella group administering debt-relief options, is established.
To apply for debt relief, Gleasure notes that you will have to engage the services of a licensed practitioner.
Such licences have not yet been granted, but are likely to include a wide range of professionals including financial advisers, accountants and solicitors.
It is possible that the Money Advice and Budgeting Service (Mabs) might take on board such a role for lower-value debts.
If you do succeed in getting debt relief, you can expect to take a hit on your credit rating for five years.
But as Gleasure notes, this is unlikely to affect people applying for relief, as they are unlikely to have kept up with their repayments. “It’s probably a bit late at that stage to salvage anything,” she notes.