Better to pay off credit card or save

D3xt3r5L4b

forgotmyname said:

Minimum payment   OUCH!!!   Old threads somewhere about that..  £5000 with just the minimum payment could
take close to 20 years to pay off depending in the interest rate.

Yes minimum payment whilst the 0% deal is going. Then bulk pay off the remainder at the end of the 0% offer to avoid any interest 

D3xt3r5L4b

Mickey666 said:

D3xt3r5L4b said:

forgotmyname said:

Minimum payment   OUCH!!!   Old threads somewhere about that..  £5000 with just the minimum payment could
take close to 20 years to pay off depending in the interest rate.

Yes minimum payment whilst the 0% deal is going. Then bulk pay off the remainder at the end of the 0% offer to avoid any interest 

I agree with that in principle, but does no one consider why companies offer cards with 0% interest for the first 18 months?  It’s a fishing exercise to HOOK the card holder using the card over 18 months until they are suddenly faced with thousands of pound to repay in one lump.  Many (most?) will not have saved the necessary money and then be saddled with expensive debt for years.  Anyone who really can manage their money well enough to save the necessary money almost certainly doesn’t need a 0% credit card at all.  Besides, with low interest rates for savers at the moment and, probably, a low credit limit for a first time card, how much is the OP likely to make with this risky arrangement.  I would say steer well clear of such things!

However, the OP stated they want to increase their credit rating and a credit card can certainly help in this respect BUT I’d say the golden rule is to pay of the full amount on the card EVERY MONTH, preferable by direct debit so it can’t be forgotten.  Furthermore, forget about the card interest rate (because there won’t be any interest incurred if managed correctly) and go for a cash back card instead.  They don’t pay as much as they used to, but every little helps and the OP would probably make just as much this way as with a 0% card over 18 months - assuming they really did put away the amount spent on the card.

Also, wouldn’t regular monthly repayments help to build a good credit rating better faster than 18 months of borrowing followed by one large payment?  I use a cashback credit card for pretty much all my normal spending and the balance is paid off in full every month by direct debit.  I’ve done this for decades (not always the same card).   I’ve no idea what the interest rate is on the card because I’ve never paid a penny in interest.

Indeed it is. But sensible users will know otherwise and will clear the balance before the promo period ends.
Others won’t and will think they’re automatically eligible for another Balance Transfer Card elsewhere and just “move the debt around” but in reality they aren’t and then they’re stuck with a massive interest accruing debt. 

Regarding building a “credit rating” - unless you’re privy to each lenders lending criteria then you don’t know what counts as an improvement or not.
Of course, we’re completely disregarding the CRA’s scores and ratings here as they’re just marketing drivel. 

mrkds

@forgotmyname, Sticking to minimum payment is fine as long as you put away what would be the full payment into a savings account somewhere, earning a bit of interest in the process. Then use that to pay off the whole balance before the 0% period expires.  I believe this is what is called 'stoozing'.

Yes these 0% promotions are aimed at making money from the not-so financially savvy, but for those that are, they are extremely useful.

Mickey666

I get the stoozing thing but in practice how much are we talking about?

If the credit limit on a new, first, credit card is, say, £1500 that means potentially gaining interest on £1500 somewhere for 18 months, let's assume 1.1% in NS&I for example, so that's less than £25 over 18 months or less than 7p/day.  Is that return really worth all the effort and risk of ending up without the means to pay off the CC debt when the 0% period ends.  I don't think so.

D3xt3r5L4b

Mickey666 said:

I get the stoozing thing but in practice how much are we talking about?

If the credit limit on a new, first, credit card is, say, £1500 that means potentially gaining interest on £1500 somewhere for 18 months, let's assume 1.1% in NS&I for example, so that's less than £25 over 18 months or less than 7p/day.  Is that return really worth all the effort and risk of ending up without the means to pay off the CC debt when the 0% period ends.  I don't think so.

These days. No.

Think back when savings rates were somewhat decent and it was indeed worthwhile. 

mrkds

I think the what is deemed too much effort is subjective. Below I outline the steps and time cost when stoozing: 

1. Open the credit card. Takes about 15 mins to apply and get a decision plus a few days wait for card to arrive in the post. 

2. Mark a reminder in your calender / diary a couple weeks before the date the 0% period ends. (Literally takes seconds!)

3. Open a savings account (if you don't already have one). Usually takes no more than 15 mins. Usually can use straight away (possibly need to do  document checks adding a few days wait). 

4.Set up direct debit to pay minimum payment when you first get the card. (A two min job online, once!)

5 .every statement, check what additional spending has been made and deposit the same amount in the savings account (2 min job online, once per month)

6. When you calender reminder comes up, transfer all the saved money to pay off the full balance (2 min job online, once, done!) 

This all adds up to a grand total of 45-70 min effort max over the course of say 12-18 months. 
True it's slim pickings in terms of savings accounts but there are still I few decent options out there( e.g. HSBC 2.75% on up to £250 pm -yeilding about £40 over 12 months).   For me personally, £40 for 70 mins of effort is worth it. Compared to some mediocre £10 - £20 cashback deals on things like broadband and energy switches where you have to jump thought dozens of hoops and chasing emails, stoozing is a much more time-money efficient exercise. 


 In terms of risk, setting up the direct debit ensures you wont ever fall foul of late payment fees. And there is no reason you should not have the amount you need saved up as long as you dont spend beyond your means. If youre that kind of person then the whole aim of improving ones credit score flies out of the window anyway!

mrkds

Even if you think stoozing is not worth the effort, a still better option is to treat the 0% promo as an interest free loan. Work out what the equivalent monthly payments would be (divide the credit limit by the duration of the 0% period) and set up a direct debt to pay off that amount instead of the minimum payment. No other thinking or effort required!

Beeboo23

20aday said:

Sorry to jump on board but my own personal experience: used to pay off my account once any spending had been posted to my account because I thought I was doing the 'right thing'-wasn't until I read here on MSE a fair few years ago that paying off your bill each month once the statement had been generated and before the due date would be far more beneficial.

I didn’t know this. I always pay them when I get paid (except my 0% purchase one which gets paid monthly) as I don’t like to have debt owed. I’ll start doing it the way you recommend. 

femalemonarchfemalecanine

Mickey666 said:

I get the stoozing thing but in practice how much are we talking about?

If the credit limit on a new, first, credit card is, say, £1500 that means potentially gaining interest on £1500 somewhere for 18 months, let's assume 1.1% in NS&I for example, so that's less than £25 over 18 months or less than 7p/day.  Is that return really worth all the effort and risk of ending up without the means to pay off the CC debt when the 0% period ends.  I don't think so.

back in the days of no fee long 0% transfers and 10% interest on savings, quite a lot. Now breaking even is a feat!

Mickey666

mrkds said:

I think the what is deemed too much effort is subjective. Below I outline the steps and time cost when stoozing: 

1. Open the credit card. Takes about 15 mins to apply and get a decision plus a few days wait for card to arrive in the post. 

2. Mark a reminder in your calender / diary a couple weeks before the date the 0% period ends. (Literally takes seconds!)

3. Open a savings account (if you don't already have one). Usually takes no more than 15 mins. Usually can use straight away (possibly need to do  document checks adding a few days wait). 

4.Set up direct debit to pay minimum payment when you first get the card. (A two min job online, once!)

5 .every statement, check what additional spending has been made and deposit the same amount in the savings account (2 min job online, once per month)

6. When you calender reminder comes up, transfer all the saved money to pay off the full balance (2 min job online, once, done!) 

This all adds up to a grand total of 45-70 min effort max over the course of say 12-18 months. 
True it's slim pickings in terms of savings accounts but there are still I few decent options out there( e.g. HSBC 2.75% on up to £250 pm -yeilding about £40 over 12 months).   For me personally, £40 for 70 mins of effort is worth it. Compared to some mediocre £10 - £20 cashback deals on things like broadband and energy switches where you have to jump thought dozens of hoops and chasing emails, stoozing is a much more time-money efficient exercise. 


 In terms of risk, setting up the direct debit ensures you wont ever fall foul of late payment fees. And there is no reason you should not have the amount you need saved up as long as you dont spend beyond your means. If youre that kind of person then the whole aim of improving ones credit score flies out of the window anyway!

A cashback credit card seems like a better option to me.  No effort at all, not even writing a long post in justification  and a lot more than £40 over 18 months.
I get that stoozing May have once been worthwhile but I doubt many people today are interested in what they could have done ten years ago