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Independent

Crunch time for your credit card

Your credit card will crush you if you don't use it wisely. You must be a good bet to get a low interest credit card, says Sinead Ryan

Credit cards are always expensive. Always. The only more expensive form of finance is a moneylender. That said, they're an invaluable tool for many and, if you use them wisely, paying off your bill by direct debit when it comes due, they're completely free. You get up to six weeks credit and it costs you nothing except the €30 Government stamp duty.

The danger comes when you repay less than is owed, or worse still, only make the 'minimum payment' so helpfully offered by the bank, which is always a comfortingly low figure. For instance, a balance of €5,000 with a minimum monthly repayment of €125 will take a staggering six years and one month to repay at an interest rate of 22pc, by no means the highest on the market. It will cost you €9,125 in total repayments, and that's with no additional spending during that period!

Switching to low-interest credit cards is a challenge, since you must be a really attractive customer for them to take you on, but they do exist (see table). You'll have to complete an application and its appeal is particularly apparent if you transfer over a balance at low or zero interest.

Banks want this because once you pay it off, you'll be spending with them at high rates afterwards. New purchases will be charged at the higher rate in the meantime, but it does give you a chance to pay over-hanging debt down. Do check out the likes of www.bonkers.ie for good up to date comparisons and www.consumerhelp.ie for an excellent debt reckoner.

Do consider alternative providers from the main banks also. Tesco's Clubcard credit card is very attractive at 0pc on balance transfers for six months and 19.1pc thereafter.

Some banks offer different types of credit card based on income levels or credit restrictions so you need to read the small print to see what's being offered.

For example, Ulster Bank has one card at 22.7pc but with a limit of €1,500 credit and no minimum salary requirement; another is 19.2pc with a credit limit of €3,000 but there is a minimum salary qualification of €30,000 p.a. AIB has no fewer than four types of credit card, with different options.

However, there are other switching options. With the roll out of the new Visa Debit system across Europe, it means that debit cards (old ATM/Laser cards) work exactly like credit cards, in all the places that take them worldwide, and online, and all using your own money rather than borrowing from the bank.

If you haven't received your debit card from Visa from your own bank, ask them for one now. Should you dip into your overdraft, make sure it's authorised (by agreeing it with your bank in advance) and that the interest being charged is less than a credit card (it should be). Stamp duty on debit cards is only €5 per annum. Alternatively, consider prepay credit cards. These are available from a variety of outlets including 3V (which will take under 18s and is therefore very popular with kids downloading from iTunes!), 02 Money Card, Payzone Money and Skrill. Prepays are not usable in regular shops however, but behave perfectly well online without the hefty interest bill, as you load up the card with your own money in advance. After that, it looks and behaves like a credit card but is really a voucher in actual fact.

All you pay for is the 'load up' fee, which can be pricey, so do check. It's either a percentage of the top up amount or a set fee. Prepays are great for people who don't trust themselves with a credit card, but need the convenience of one.

* €4,125 on a balance of €5,000 if paid off in 6 months instead of minimum payments over 6 years.

CREDIT CARDS WITH LOW BALANCE TRANSFER OPTIONS

Provider Ordinary APR on purchase s Balance Transfers

KBC18.25% 0% for six months

PTSB Ice 18.4% 0% for six months

Tesco Clubcard 19.1% 0% for six months

AIB 22.7% 3.83% for 12 months

Bank of Ireland 19.9% 3.9% for six months

Ulster Bank 22.7% 3.9% for 12 months

How to switch... your credit card

Step 1

Research credit card interest rates and credit limits online (www.bonkers.ie). Be aware that many credit cards insist on an income limit, so you must supply supporting evidence for this.

Step 2

Complete application form and attach relevant income and identification requirements (generally utility bills, bank statements and previous credit card statements).

Step 3

If you are transferring a balance from your old card, this must be re-negotiated with new supplier and may require further assurances/financial information such as job status, payslips, etc.

Step 4

When your new card is delivered, sign the reverse and activate by calling the number supplied.

Step 5

Don't make the same mistakes again - use it as a tool rather than an expensive loan.

Potential saving: €4,125

Total time: 65 mins

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