Direct debit to pay full credit card balance

thelongdog

Howdy.

I have had a credit card since university, and I have always considered it a cruel and dangerous invention: I struggled to pay it off, and often missed payments. As this has no doubt smashed my credit rating about, I have recelty decided to (try) and rectify this.

I heard from a friend that it is possible to set up a direct debit from my current account to pay off my credit card each month, and I have now set this up. I plan to now use my credit card for pretty much every daily transaction, safe in the knowledge that the balance will be paid off in full with no charge each month.

Am I right to think that this will:

1) Be safe
2) Avoid any interest payments / charges on my cc
3) Help to improve credit rating?

Thanks

Tixy

Yep, providing you have enough money in your current account so that the DD does not bounce of course.

You need to make sure that your balance is down to nil first before you start using it like this (to make sure no interest is charged).

But in order to improve your credit rating you could just put say 2-3 items on each month, rather than everything you buy.

cifpower

As long as you have the money in your account so the DD can be paid and it says on your credit card statement that a direct debit will be collected then:

Yes
Yes
Yes

no_more_cards_for_me

Hello,

The answer is yes to all 3 but only if you have sufficient funds in your account to settle the card at the end of the month. Personally I use the card for meals, fuel, travel that I claim back on expenses. My own personal expenditure is done on a O2 money card. Reclaimed expenses settle the credit card bill and I put so much in the account for private petrol. The money card takes care of my expenditure for the month on other things. From experience I know that I can't put everything on the card, its too easy. Lately I've even gone back to carrying cash to pay for some stuff. Then I keep to my budget.

If you settle in full each month then you won't pay any interest or other charges.

Good luck, paying in full will certainly help your credit rating.

:beer:

HouseHuntr

One very important thing to remember when paying in FULL with a DD is to ensure that those funds are in your bank account at the close of business on the last working/banking day before the DD is due out

e.g DD due out on a Tues after a Bank hol weekend - Funds need to be in your bank account by the friday beforehand*

* Unless you have an O/D facility to cover the amount.

spikeydudeuk

Hey,

Most credit card companies will give you a choice between a DD for the minimum payment for that month, or for the full amount due. Each one has different advantages and disadvantages.

DD for the minimum amount

All you're required to pay under your credit card agreement is the minimum amount. So if you have a DD that ensures the minimum is always paid, then you will always comply with your basic obligations, and you won't (technically) miss any payments. This means that you shouldn't get any defaults on your credit history, which should help to rebuild your credit rating.

If you do this and you want to pay off more than the minimum amount, you'll have to make an additional payment, possibly through online banking from your current account. If you don't make this payment, then you'll end up paying interest on your credit card. I pay my CC off every month, but my DD is only set up to pay the minimum amount. I have a reminder set on my phone, and when I make the payment I can sit down, think about how much I've spent that month, and work out the right mix of money from current account and savings to make the payment. If the full amount came out automatically from the current account, I wouldn't have this prompt to reflect on my spending. So this option works well for me.

DD for the full amount

From what you say, it sounds as though the credit card you're using has a balance on it. So if you set up a DD for the full balance on each statement, won't that just take the full amount owing on your credit card out of your current account in one go? If so, is this what you want?

If you normally pay your credit card off in full every month, then this option can work well. But bear in mind that if for some reason you don't have enough money in your current account to cover the whole of the bill, then your current account provider will either pay the DD and charge you for creating an unauthorised overdraft, or reject the DD, in which case your credit card provider will charge you for missing a payment, and record this on your credit history.

If you find something that works for you to get the amount you want paid off every month, then that has to be better for your credit rating than missing payments. As to which option is safer and will help to avoid the most interest payments and charges overall (i.e. both on the CC and on your current account), it really does depend on your personal situation.

Hope this helps!

no_more_cards_for_me

Househuntr makes a good point, my DD was due on the 12th April but the funds were requested on 9th due to BH. No real problem but something to be aware of for the future.

thelongdog

Thanks folks. All worries dealt with!