Credit & Debit Cards


Credit cards

Credit cards have become a common electronic payment instrument. A credit card is relatively easy to obtain and easy to use, availing oneself of one's credit limit! Some people find they do not have the discipline to control their spending especially when it is conducted on a credit basis, and thus make the sensible decision to do without a credit card. Another option would entail that if you are after the convenience but do not want to get into debt, one can use a debit card instead. Please read on!

  • are a form of short-term finance, allowing goods and services to be purchased sooner, even if at a greater cost, than if we had to save up for them.

  • are a convenient payment instrument, reducing the amount of cash we have to carry around, including when we travel, for conducting purchases over the phone and over the Internet.

  • may have attractive rewards programmes associated with them.

  • can also be useful as a source of emergency funds.

If you are over 18, you may qualify for a credit card. Your bank will carry out a credit scoring exercise to assess whether you are eligible for such a card.

If you are under 18, you may qualify for a credit card if you are an additional cardholder. For example, a member of your family (e.g. your dad or mum) has a credit card in their own name and the bank issues a card to you as additional or "supplementary" card holder. However, your dad or mum remain liable for all amounts owing, including any losses from a secondary card-holder's negligence.

A credit card is different from a debit card. This means that it does not remove money from the user's account after every transaction. Unlike repayment on a traditional loan  such as a car loan, credit cards do not allow you to spread the amount you owe over a fixed period of time. Instead, you are required to make a minimum monthly payment, which is the smallest amount you can pay and still meet your cardholder agreement, that is the terms you agree to when signing up for the card. The minimum payment is usually between 2 and 9 percent of your outstanding balance. Unfortunately, by paying only the minimum each month instead of paying off your entire balance, your debt will continue to grow.

  • Do I need a credit card?
  • Will I be able to afford it?
  • Will I be able to meet the monthly payments?
  • If I decide to apply for a credit card what should I look for?
  • Low interest charges and low finance charge. These are generally shown as APR. (APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers).
  • Low or no annual fees .
  • Credit cards which provide time periods where no payments are due before finance charges are posted.

As a student/young adult, you will have to decide for yourself if you can handle the responsibility of a credit card. Credit cards are easy to get but not so easy to manage, especially if you end up with a high, unpaid balance on which interest is accruing, and no payments are being made. Knowing when to make use of credit is the difference between purchasing what you need and paying for it or finding yourself in a situation of unbearable debt. The following are acceptable reasons to make use of credit:

  • Purchase of items which will result into cost reduction.

  • Purchase of a necessity.

Like loans, using credit cards can help you build a positive credit history. This can enhance your ability to seek a future personal loan or a home loan. Of course, there are other advantages to having a credit card including:

  • Cash availability in the case of an emergency.

  • Good substitute for cash.

  • Automatic record keeping.

  • Internet orders.

  • Combine many purchases into one payment.

Credit cards can be helpful in emergencies or if you are able to pay off the balance each month, but be wary! Credit cards can also get you into trouble. As already indicated, they may be easy to get but not so easy to manage.  Also other disadvantages include:

  • Impulsive spending increases.

  • Temptation to overspend.

  • Non essential items being purchased.

  • Misuse of credit cards can lead to potential problems with your bank.

Although it may seem good to see that you have only a small amount to pay each month, in the long run if you continue to pay only the minimum payment you will never be able to pay the balance off. If you keep paying the minimum payment it might give you the feeling that you are on top of your bills and taking care of your responsibilities. This is a false illusion because if all you ever pay is the minimum, it will cost you money. Paying only the minimum payment amount or only a few euros over it, you will most likely take around 20 years to pay off your debt. After interest is added, your debt will be more than doubled.

The safest way is to carry no balance at all. If this is not possible as is generally the case you should pay at least between 7 to 14 euros above the minimum. This will also help you to slide a month or two when unexpected expenses arise.

This is a situation that it is easy to get into but tricky to get out of. The following tips are some precautions that you can take if you are not able to meet the payments:

  • First cut any recreational expenses.

  • Phone your bank to see if they can work out a new repayment schedule.

  • Develop a budget and stick to it. Having an excess amount of credit may damage your eligibility for future loans.

  • Use a debit card instead.

Debit cards are different from credit cards. While a credit card is a way to "pay later," a debit card is a way to "pay now." When you use a debit card, your money is quickly reduced from your current or savings account. This means that debit cards allow you to spend only what is in your bank account.

In Malta banks will give you a debit card for free, thus no fees will be charged when acquiring a debit card.

  • A debit is easier to get than a credit card.

  • A debit card frees you from carrying any cash or cheque books.

  • Using a debit card instead of writing cheques saves you from showing identification or giving out information at the time of the transaction.

  • Debit cards save you from carrying cash when you go abroad and are also more readily acceptable than cheques.

  • Debit cards do not have any interest charges.
  • To make a purchase you need to have the money available in your bank account.

(As you can see, the advantages outweigh the disadvantages).

Interest is generally either charged from the date of purchase of items or from the date your monthly statement is issued. For cash advances, interest is usually charged from the date of the withdrawal. Insist on seeing a copy of the Conditions of Use before you apply, so you can check because, other things being the same, you will most probably be better off with a card that only applies interest from the statement date.

Depending on how you use your card, fees can add a lot to the cost of your card. Commonly charged fees include:
  • annual account fees

  • fees to use rewards programs

  • fees for late payments

  • payment dishonour fees; and

  • fees for exceeding your credit limit.

Fees must be properly disclosed - most lenders publish their fees and charges in booklets and on Internet sites. As long as the terms and conditions for the card give the lender the right to increase existing fees and impose new ones – and they almost always do – there is not much you can do, if faced with a fee increase on your card, except shopping around for a different card or a new card issuer. 

If you want to know more about the use of debit and credit cards, MyMoneybox has a dedicated section specifically on this subject. Click here to read more.

Last updated: Sep 07, 2016

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