Finance

6 MUST USE CREDIT CARD STRATEGIES

Try to pay back more than the minimum monthly payment

 

1 – Caution! EXTREME FINANCIAL DANGER. This really is something they should teach in every school. Paying back just the minimum payment each month on your credit card is incredibly expensive and may take you many years to repay the debt.

 

Money Saving Expert gives a cautionary example of a 21 year old borrowing £3000 and not paying off the debt until 50 on account of just paying the minimum balance each month. To see how you could be affected use the Money Saving Expert calculator.

 

 

Best practice is to pay off credit card debt as soon as possible. It may be easy and comfortable to only pay the minimum balance but the cost to you in extra interest is eye-watering.

 

 

Credit card balance transfers can reduce debt

 

2 – Where you’re having trouble with your credit card debt, before you mess up your credit score, you can look at an interest-free or lower interest balance transfer to another credit card company, bringing your finances under control and paying off your debt faster.

 

HOWEVER THIS MANOEUVRE IS NOT A FREE LUNCH. The lenders offering interest-free or lower interest will normally charge a transfer fee – a percentage of the amount being transferred.

 

You will need to do some careful calculations to work out whether you will still be better off given the total cost of making the transfer.

 

Also, you should try to clear the debt before the interest free period runs out.

 

Consider paying off expensive credit card debts before you save

 

3 – At present, typically, interest rates on savings are low and interest rates charged on credit card balances are high. Therefore, if you have a credit card and have spare income each month, you will usually be better off by reducing your credit card debt rather than putting your money into a savings account.

 

 

DO NOT EXCEED YOUR CREDIT CARD LIMIT

 

4 – Read your statements every month and keep an eye on your balance. If you know you will or may exceed your card limit, approach the credit card company in advance and see if you can increase your credit limit to cover your anticipated spending.
 
If you exceed the limit you are likely to incur a penalty charge and you will incur extra interest because the penalty will increase your balance.
Pay on time

 

5 – You can do serious damage to your credit rating by failing to pay your monthly instalment on time. A late payment or missed payment can lead to:

 

  • a late payment fee
  • an increase in the interest rate you pay and
  • a late/missed payment entry in your credit file.
THESE EVENTS CAN LEAD TO A LOWERING OF YOUR CREDIT SCORE, MAKING IT HARDER AND MORE EXPENSIVE FOR YOU TO OBTAIN FUTURE CREDIT.

 

If you are prone to forgetting to pay on time, it is good practice to set up a standing order or direct debit.

 

Do not allow your credit card company to default your credit card account

 

6 – Different credit card companies have different rules but normally your account will be defaulted if you miss 3 to 6 payments. On default you will receive a formal default notice. It is crucial that you do not ignore such a notice. The notice will tell you how much you need to pay, and when, to bring your account up to date. That could be the total amount you owe and not just the outstanding instalments.

 

If you are unable to bring your account up to date, contact the credit card company immediately to explain the position, and seek debt advice from a debt adviser or the Money Advice Service.

 

 

A default can do serious and lasting damage to your credit score – preventing you from borrowing or making borrowing more expensive.

 

A DEFAULT WILL USUALLLY REMAIN ON YOUR CREDIT FILE FOR 6 YEARS AFTER THE DEFAULT, EVEN WHERE YOU PAY OFF THE DEBT IN FULL.

 

Therefore, the important thing about a default is that you should do all you can to PREVENT one from arising.

 

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Dalton Barrett
Rebel Property Coach

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