Can You Take Advantage of the ‘Up to 56 Days Interest Free’?

snappy2004

I remember reading a comment that was made in a thread a long time ago in which someone stated that they had a friend who had her salary paid into her credit card and then used the credit card for everyday spending and now this has got me thinking.

If someone has a credit card with £2,000 outstanding (@ 11.9% APR, with the ‘up to 56 days interest free’ period) and regularly spends up to £250 per month on shopping using a debit card.

Would this person save any interest (however small) if they were to pay £250 plus the minimum payment (presuming they can only afford the minimum) onto the credit card each month and use this to spend the £250? Or am I missing something?

If they also have a Tesco credit card (or another card with benefits), they can also take advantage of the extra points they could earn doing it this way.

chattychappy

I could be missing something.... But I think what you're missing is when you make a payment you can't choose how to allocate it.

Whilst the statement is not paid in full, interest will be applied and there will be no interest free period. The 56 day thing only kicks in if you clear the whole statement balance each month on time. And you can only get 56 days if your transaction just misses a statement (so it's a month before it appears and then you get 3 weeks or whatever to pay).

The best way to achieve the outcome you mention is to use two credit cards (aside from BT deals etc) on the following basis:

1) Be aware of the minimum payment on the £2000 card.
2) Put expenditure on a new card up to £250.
3) Put further expenditure on the £2000 card.
4) At the end of the statement cycle, pay the minimum on the £2000 card, and the whole balance on the £250 card.

Then at least you're getting interest free on your £250 a month expenditure. This is always worth considering where you have a large balance outstanding and can pay more than the minimum payment.

Of course other possibilities include BT to 0% card (at a fee of course). Or what about getting a 0% on purchases card so for at least 6 months or a year, new purchases are interest free despite only paying the minimum balance. Then knock back the £2000 more rapidly.

Paul_Herring

snappy2004 wrote: »

If someone has a credit card with £2,000 outstanding (@ 11.9% APR, with the ‘up to 56 days interest free’ period)

If you are carrying a balance over from month to month, there is no interest free period - this only applies if you clear the balance EVERY month.

e.g. Someone clearing the balance can buy something the day after a statement is produced and need not pay for it until the due date of the next statement (this is the 56 days) without incurring interest.

Someone not clearing the balance, buying something the day after a statement is produced, will incur interest from the date of purchase (i.e. no 56 day interest free.)

snappy2004

Alas, the 56 day interest free period cannot be taken advantage of.

But I think by using the credit card for everyday use to reduce the interest would still work.

From what I have read about the way in which the interest is calculated is by using the average daily balance for each day during the month.

So therefore if there is £2,000 outstanding @ 11.9% then the calculated would make the interest £19.72 for July.

If £325 is payed into the credit card on day 2 (including the minimum payment of £50), then £125 is spent on day 10 and then a further spend of £125 on day 26. This would calculate the interest to be £18.17 making a saving of £1.55 due to the average daily balance being lower.

Have I done this correctly or am I a donut?

CannyJock

Interest is calculated daily and applied monthly. That's why if you have carried a balance forward, the sooner you can make a payment the better.

The "up to 56 days interest-free credit" is the advantage

Of course, if you really wanted to take advantage then you'd look at 0% purchase cards .... no interest, no fees, make the minimum repayment and save your money in a high interest savings account. That way you can get 0% for up to 12 months

EDIT:
I think what you are getting at is this:
1. You have £ 2000 at 11.9%
2. You make a payment card from your salary (leaving enough for direct debits, standing orders and cash withdrawals) into your credit card as soon as you get paid.
3. You spend on the card a week later, and then some more the week after instead of using a debit card.
4. By making the payment to your card as soon as possible (because interest is calculated daily) you've reduced the interest for that month.

td_007

snappy2004 wrote: »

Alas, the 56 day interest free period cannot be taken advantage of.

But I think by using the credit card for everyday use to reduce the interest would still work.

From what I have read about the way in which the interest is calculated is by using the average daily balance for each day during the month.

So therefore if there is £2,000 outstanding @ 11.9% then the calculated would make the interest £19.72 for July.

If £325 is payed into the credit card on day 2 (including the minimum payment of £50), then £125 is spent on day 10 and then a further spend of £125 on day 26. This would calculate the interest to be £18.17 making a saving of £1.55 due to the average balance being lower.

Have I done this correctly or am I a donut?

Not sure what you mean. If you pay back £325 and make no other puchases for that month you will pay interest on £1675. Otherwise in you case, you will pay interest on £1800 and then on £1925. Surely interest on £1675 for the whole month (30 days) will be less than the interest for £1675 (30 days)+£125 (20 days)+£125 (4 days) [Assuming 30 day month]

CannyJock

snappy2004 wrote: »

Have I done this correctly or am I a donut?

Nope not a donut, you're on the right tracks. 11.9% APR is equivalent to 11.3% non-compounded, based on a 365 day year gives a daily rate of 0.031%. So for July being a 31 day month.

If you only paid £50 on the 2nd of the month the interest would be:



If you paid an additional £250 to the card and then spent it as you say (i.e. £300 not £325 or it's not an even comparison!), the interest would be:



So you'd save £ 1.27 in interest.

The moral of the story is pay as much as you can to your card as soon as you can

moneysavingmarrow

Prior to having 0% on purchase cards, I used 4/5 different cards with different statement dates.
Basically I would use a card for a week that I knew was the first week of the forthcoming statement month.
I would then move onto the next card and put the first away and so on untill it was time to use the first one again.
I cleared all balances as close to the due date as I dared.
This system gave me a constant 6-7 weeks free credit.