Correct credit card usage

colinstillwell88

I was explaining to a friend a few days ago about my current financial situation and ways to try and get out of it, when they came up with some advice which I am not sure whether it is correct or not.

For the past 6 months I have been going through the following routine:
- Get paid
- Pay off interest on my credit cards (with a little extra than the minimum)
- Live off my current account as normal
- Current account runs low at the end of the month and I dip into the credit cards

My friend explained to me that it would be more beneficial to pay a larger amount off on my credit cards as soon as I get paid, then spend on the credit cards. That way it works better as I am not being hit with as much interest.

So if I get paid on the 25th, I pay off as much as I can on the 26th for both cards. Then use them until the 25th and repeat the process. Leaving myself with some cash of course... They also said I would need to change the statement date, would this be the 26th?

Is this correct? Or have I misunderstood them.

Thank you in advance for your help.

[Deleted User]

The best way is to pay off in full each month. If you can't afford that, then pay off as much as you can, as early as you can, to reduce the interest.

colinstillwell88

Unfortunately I cannot pay off in full each month. My question relates to whether its a better idea to pay off more then use the cards to spend on after.

I do not mean to sound rude, but please read my whole message!

WantToBeSE

I know its not what you want to hear, but the BEST idea is to not use your CCs. Just go one month living on what you get paid. That way, you don't end up using your CC every month.


However, I accept its not the question you are asking...so I would say that its best to pay a higher amount off your CCs when you get paid.

NiftyDigits

colinstillwell88 wrote: »

I was explaining to a friend a few days ago about my current financial situation and ways to try and get out of it, when they came up with some advice which I am not sure whether it is correct or not.

For the past 6 months I have been going through the following routine:
- Get paid
- Pay off interest on my credit cards (with a little extra than the minimum)
- Live off my current account as normal
- Current account runs low at the end of the month and I dip into the credit cards

My friend explained to me that it would be more beneficial to pay a larger amount off on my credit cards as soon as I get paid, then spend on the credit cards. That way it works better as I am not being hit with as much interest.

So if I get paid on the 25th, I pay off as much as I can on the 26th for both cards. Then use them until the 25th and repeat the process. Leaving myself with some cash of course... They also said I would need to change the statement date, would this be the 26th?

Is this correct? Or have I misunderstood them.

Thank you in advance for your help.

The best course of action, would be to apply for a 0% Balance Transfer card and then aim to pay as much of the balance off as you can in those months.

You'll be in a better position overall.

Though regarding your question, if you can pay your whole debt off with your month's wages, even if it leaves you with no money, do so.

Then as you say, you won't have any new interest to pay, until you fail to pay your statement balance in full perhaps two months later.
But best to try to get 0% or low rate balance transfer card and to pay off as much as you can.
If you pay of just the interest and a little bit more on your current card, you'll still be paying it off in ten years time.

Look here for balance transfer cards.

StuC75

With the Same card - no theres no benefit as Its really a 6 & 2x3 scenario -

Even if you pay more off the credit card, then it means that you are going to start using that card again sooner within the month, which because you haven't cleared the card of those transactions will still be interest bearing from day one (i.e. No upto 56 days interest free)..

Its going to be better in terms of your credit history - as the card company will show higher payments being made - rather than just minimum instalments..

The real win situation is to use this to take stock of your finances (Light Bulb Moment), budget to live within means and tackle those debts.. With a reasonable credit file you could then look for something that offers x months interest free on balance transfers so you could then chip at the balance over a number of months..

JimmyTheWig

Basically the credit card companies look at how much you owe each day and charge interest on that. So your friend is right.

Lets take a simplified scenario.

Status quo:
Current credit card debt: £1000.
Get paid on 25th September.
Spend £100 cash / debit card in Tesco 9th October.
Get paid again 25th October.

What your friend suggests:
Current credit card debt: £1000.
Get paid on 25th September.
Pay £100 off your credit card 25th September.
Spend £100 on credit card in Tesco 9th October.
Get paid again 25th October.

With the first example, your credit card balance from 25th September to 24th October is £1000. You'll pay 30 days' worth of interest on £1000.
With the second example, your credit card balance from 25th September to 9th October is £900, then from 9th October to 24th October is £1000. So you'll pay 14 days' worth of interest on £900 and 16 days' worth of interest on £1000.
If your interest rate is 18% you'll save about 70p doing this.

The more you can do it with the more you'll save.

Quimoi

JimmyTheWig wrote: »

Basically the credit card companies look at how much you owe each day .... you'll save.

Very good explanation

eskbanker

colinstillwell88 wrote: »

Unfortunately I cannot pay off in full each month. My question relates to whether its a better idea to pay off more then use the cards to spend on after.

I do not mean to sound rude, but please read my whole message!

To be fair, the same advice applies to you too - the second sentence of zx81's post answers your question in a very concise manner!

shortcrust

If it's a choice between the two, then yes it would be better value to pay off and spend on the card as your friend suggests. The money you'd save on credit card interest would be more than you can earn by having cash in the bank. Risky though in that your credit card could be closed or your limit reduced. You'd also have to pay to get cash, and cash limits can be different from overall limits. I wouldn't do it.

As others have said, try to get a 0% balance transfer.

MPH80

It requires major discipline to do it though. You have to be very careful not to spend more on the credit card than you paid off.

Hence why the advice is, generally, to not use the card.

But your friend is right that it is better to pay more earlier (marginally).