Which is the best card for spending on? (Maths problem)

weebit

Hello, I have a maths problem I can't work out, hope someone here can help...

So I have 2 credit cards on a high level of interest, so i'm attempting to reduce the amount I'm being charged in interest by spending on them (keep with me).

The idea being that when I get paid at the end of each month, I work out how much I will need to pay out in cash/direct debit etc, allow myself £100 cash to spend and then pay the remainder onto a credit card. This way, instead of doing all my normal spending (food shopping, travel etc.) via cash or debit card, it all goes onto my credit card but with the result of making a large payment onto my credit card instead thus having the advantage of the "up to 56 days interest free" thing they keep banging on about.

So question #1: quite simply, will doing this reduce the interest I am charged per month (assuming of course that overall I spend less than I am paying onto the credit card)

question #2: which card would be best to spend on?
(Both cards have a balance of about £500 at the moment so regardless of which one i do my normal spending on, one of them will be clear in about 3 months)
Card 1: Capital One at 30.34% but with 1% cashback on all spending
or
Card 2: Barclaycard at 29.9%

The thing I am unsure of is the cashback element. does having the 1% cashback in effect mean that my Capital One rate is actually 29.34%?

I know its only a small difference in interest rates, but every little helps afterall!

LewisMeau500

Weebit how long have you had the credit cards and what is your credit score like?

weebit

if you're suggesting i get another card, forget it! I applied for 2 recently and was rejected so that's not an option at the moment. I'm just trying to minimise interest at the moment.

the idea is that soon one card will be clear and i can use that for general spending and pay off in full each month. this is just a stop-gap until that time (hopefully in about 3-4 months time)

BugsyBrowne

LewisMeau500 wrote: »

Weebit how long have you had the credit cards and what is your credit score like?

No one know their credit score and never will.

dzug1

weebit wrote: »

Card 1: Capital One at 30.34% but with 1% cashback on all spending
or
Card 2: Barclaycard at 29.9%

The thing I am unsure of is the cashback element. does having the 1% cashback in effect mean that my Capital One rate is actually 29.34%?

I know its only a small difference in interest rates, but every little helps afterall!

Without doing the arithmetic in detail both cards are approx 2.5% per month - but the C1 is 1.5% after accounting for the cashback

But unless you spend on the C1 you won't get any cashback, so it's a bit academic and there's next to nothing to choose between them

CLAPTON

firstly you don't get 'up to 56 days free credit' unless you clear your credit card in full each month

however the interest is charged based on your daily balance so your strategy is sound.

as the interest charged is similar for both cards then using the cashback card for purchases is clearly the best thing to do

thenudeone

weebit wrote: »

The thing I am unsure of is the cashback element. does having the 1% cashback in effect mean that my Capital One rate is actually 29.34%?

No it's completely separate. You'll get the 1% cashback even if you pay off the purchase the next day, but the interest depends entirely on how long it takes off to pay off the purchase. If you only pay the minimum every month, it will take many years and it will cost 30.34% of the balance EVERY YEAR (although the balance will become gradually lower over time), so you could pay back several times what you borrowed!

malcolmffc

Instead of trying to be clever, just concentrate on clearing the debts on these very high interest cards. After that, a debit card will be the best card to use :-)

pqrdef

weebit wrote: »

The thing I am unsure of is the cashback element. does having the 1% cashback in effect mean that my Capital One rate is actually 29.34%?

It's much better than that. If you spend and pay back £N a month, the average amount you owe will be half of £N and the cashback will be 1% of £N per month, or 12% per year. So it's like they're paying you 24% interest on the money you owe them.

In other words, by doing what you suggest, you will halve the interest on the amount you turn over, and the cashback will pay most of the rest.

Example. Balance £500 a year, pay off negligible amounts, interest £150 a year.

Plan B - pay off £400, spend £400, repeat monthly. Average balance now £300, interest £90 a year. Out of that, £30 is for the £100 running balance that's never cleared, and £60 is on the monthly spending, but £48 of that comes back as cashback.

And do everything possible to pay the balance off in full. If necessary, borrow on the other card.