Credit Card Confusion

boushear

Hello,

I am wondering if someone can explain credit cards and interest rates for me..

I have a credit card with £2618 owing on it.. now i factored £50 per month payments on it which i have been paying. Now the banks interest is £20 which goes back onto the amount so essentially i am paying £30pm
The credit card i have charges 7.8 APR on it..

What i am wondering is that if i pay off say 1500 in it and bring it down to roughly £1100 would the interest rate stay them same or would it reduce? could someone work out how much interest i would be paying a month if its not the same? I can seem to find an answer online, the calc on here says i will pay a certain amount in fees but not the precise amount per month..

Are there any better ways to pay off a credit card? I spoke to my bank and they just confused me even more

Cheers   

yksi

The rate would not change. The rate is determined and set by the card issuer and is not related to the amount you have owing on it.

If what you've written is correct, then let's imagine you paid off half in one go. You'd then have half as much interest charged, so you'd have say £10 of interest instead of £20. If you continued to make £50 payments each month you'd be knocking £40 or so off what is owed - this amount would increase over time, because the balance is dropping, therefore, less interest charges. At that rate, you'd clear it in two and a half years.

yksi

I checked on a calculator. Right now, you are paying £17 per month in interest. That amount will be reducing every month, since there is less balance left to attract interest.

MalMonroe

Hi, have you thought about applying for a balance transfer credit card and moving the balance so that for a certain period of time you will only pay off what's owing, without any interest? You may have to pay a small transfer fee but it's really well worth it in the long run.

Here's the link to an article Martin Lewis updated yesterday for this site - 

https://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards/

If you are able to do a balance transfer, you can pay in as much as you can afford each month to clear the debt. If you're only paying £30 on a debt of £2618 it's going to take ages to clear and all that interest paid (£20 per month) could be going towards your savings instead. The amount of interest will decrease as the debt decreases but I can tell you from my own past experience that it's a very slow process. Even £50 isn't enough.

If you can pay in £1500 to help clear that debt, so much the better. Before I saw the error of my ways (I had a DRO in 2013, which is when I woke up to my financial foolishness) I was also just throwing money away in the form of interest. It will also look better on your credit report as it reflects badly when people are using more than 50% of their available credit. Even if their credit report is 'healthy'.

Now it goes through me to think of all the money I threw away on interest in the past and I use one credit card only to buy groceries and essentials during the month and the direct debit is now set to pay off, in full (Martin's favourite thing) every month. I can't even bear to think of any small amount of interest being taken from me. 

It took me a long time to realise that credit cards should only be used for things I can actually afford because that's the way that I can do as Martin recommends and clear the balance. Now I'm finally debt free (it hasn't been easy and as I said I had to have a DRO) I can actually afford to start saving. And you will too but it would be best to clear as much debt as you possibly can so that your interest rate (if any) is low and you can pay it off sooner.

I hope you find the info in the link useful. It's really good and, of course, it's by Martin!  Good luck   

boushear

yksi said:

I checked on a calculator. Right now, you are paying £17 per month in interest. That amount will be reducing every month, since there is less balance left to attract interest.

Hi thanks soo much for the information, it really helps, this area is really confusing for me and was wondering what would be best to stick with monthly payments or pay a chunk off and them continue payments.. I think i will go with the latter

boushear

MalMonroe said:

Hi, have you thought about applying for a balance transfer credit card and moving the balance so that for a certain period of time you will only pay off what's owing, without any interest? You may have to pay a small transfer fee but it's really well worth it in the long run.

Here's the link to an article Martin Lewis updated yesterday for this site - 

https://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards/

If you are able to do a balance transfer, you can pay in as much as you can afford each month to clear the debt. If you're only paying £30 on a debt of £2618 it's going to take ages to clear and all that interest paid (£20 per month) could be going towards your savings instead. The amount of interest will decrease as the debt decreases but I can tell you from my own past experience that it's a very slow process. Even £50 isn't enough.

If you can pay in £1500 to help clear that debt, so much the better. Before I saw the error of my ways (I had a DRO in 2013, which is when I woke up to my financial foolishness) I was also just throwing money away in the form of interest. It will also look better on your credit report as it reflects badly when people are using more than 50% of their available credit. Even if their credit report is 'healthy'.

Now it goes through me to think of all the money I threw away on interest in the past and I use one credit card only to buy groceries and essentials during the month and the direct debit is now set to pay off, in full (Martin's favourite thing) every month. I can't even bear to think of any small amount of interest being taken from me. 

It took me a long time to realise that credit cards should only be used for things I can actually afford because that's the way that I can do as Martin recommends and clear the balance. Now I'm finally debt free (it hasn't been easy and as I said I had to have a DRO) I can actually afford to start saving. And you will too but it would be best to clear as much debt as you possibly can so that your interest rate (if any) is low and you can pay it off sooner.

I hope you find the info in the link useful. It's really good and, of course, it's by Martin!  Good luck   

Hi thank you for your advice and the information provided, i will be reading that article from Martin too..
I spoke to my bank about transferring the balance to another credit card interest free or some other payment options but they said they couldnt so it,they said that if i got a credit card from another bank i could but not if it is a internal credit card.. No idea why tho.. My plan is on the next payment to pay off a large lump sum and then maybe get it clear after 2 years or so..

I think i got into this situation by trying to help my mental health by buying something that would help when in fact it has just put another worry on my shoulder, sucks cause i had a ok amount of savings and not that will have to go on paying this card.. A good thing is that i am selling what i bought and if someone buys it i will be able to pay off a good chunk too..

Thanks

Chris_English

boushear said:

yksi said:

I checked on a calculator. Right now, you are paying £17 per month in interest. That amount will be reducing every month, since there is less balance left to attract interest.

Hi thanks soo much for the information, it really helps, this area is really confusing for me and was wondering what would be best to stick with monthly payments or pay a chunk off and them continue payments.. I think i will go with the latter

The faster you pay it off the less you’ll pay interest.

Remember, too, that if you get to the point where you can clear the full amount every month then you’ll pay no interest at all.

[Deleted User]

boushear said:

MalMonroe said:

Hi, have you thought about applying for a balance transfer credit card and moving the balance so that for a certain period of time you will only pay off what's owing, without any interest? You may have to pay a small transfer fee but it's really well worth it in the long run.

Here's the link to an article Martin Lewis updated yesterday for this site - 

https://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards/

If you are able to do a balance transfer, you can pay in as much as you can afford each month to clear the debt. If you're only paying £30 on a debt of £2618 it's going to take ages to clear and all that interest paid (£20 per month) could be going towards your savings instead. The amount of interest will decrease as the debt decreases but I can tell you from my own past experience that it's a very slow process. Even £50 isn't enough.

If you can pay in £1500 to help clear that debt, so much the better. Before I saw the error of my ways (I had a DRO in 2013, which is when I woke up to my financial foolishness) I was also just throwing money away in the form of interest. It will also look better on your credit report as it reflects badly when people are using more than 50% of their available credit. Even if their credit report is 'healthy'.

Now it goes through me to think of all the money I threw away on interest in the past and I use one credit card only to buy groceries and essentials during the month and the direct debit is now set to pay off, in full (Martin's favourite thing) every month. I can't even bear to think of any small amount of interest being taken from me. 

It took me a long time to realise that credit cards should only be used for things I can actually afford because that's the way that I can do as Martin recommends and clear the balance. Now I'm finally debt free (it hasn't been easy and as I said I had to have a DRO) I can actually afford to start saving. And you will too but it would be best to clear as much debt as you possibly can so that your interest rate (if any) is low and you can pay it off sooner.

I hope you find the info in the link useful. It's really good and, of course, it's by Martin!  Good luck   

I spoke to my bank about transferring the balance to another credit card interest free or some other payment options but they said they couldnt so it,they said that if i got a credit card from another bank i could but not if it is a internal credit card.. No idea why tho.. 

Because you can't BT with the same provider. You need to apply for an entirely separate card if you want to BT.

If you have savings to pay off the debt, then do that.

molerat

My plan is on the next payment to pay off a large lump sum and then maybe get it clear after 2 years or so.

Why wait until next payment ?  Every day is costing you around 56p in interest, the quicker you pay a lump sum the less interest you will pay.

boushear

molerat said:

My plan is on the next payment to pay off a large lump sum and then maybe get it clear after 2 years or so.

Why wait until next payment ?  Every day is costing you around 56p in interest, the quicker you pay a lump sum the less interest you will pay.

Really, !!!!!! i will get onto that tomorrow and get a lump sum paid off

Sandtree

boushear said:
I spoke to my bank about transferring the balance to another credit card interest free or some other payment options but they said they couldnt so it,they said that if i got a credit card from another bank i could but not if it is a internal credit card.. No idea why tho.. My plan is on the next payment to pay off a large lump sum and then maybe get it clear after 2 years or so..

In principle there is no reason why a bank couldn't do it but why would they? They're getting 7.9% APR from you now so why'd they agree to waive that for a few years? You offer things like BT promotions to win new customers.

Interest is calculated daily based on your actual balances so the sooner you can repay the less interest you will pay and if you can pay a lump sum and maintain the current level of repayment then it'll go down faster still because less of your subsequent payements are being eaten up by interest