What happens if you only pay the minimum payment or pay more than that on credit card?

grumpy_codger

hobn_162 said:

...and then reinstate my direct debit to pay in full again each month when I can.

As suggested above, it's better to reinstate your DD now for a minimum payment and to make extra manual payments soon after a monthly DD is taken.

hobn_162

Hi, are you able to advise why it’s better to set up a DD for minimum payment and then make extra manual payments as soon as the minimum DD is taken? 

Why is this better than just making a manual payment that’s more that the minimum? 

eskbanker

hobn_162 said:

Hi, are you able to advise why it’s better to set up a DD for minimum payment and then make extra manual payments as soon as the minimum DD is taken? 

Why is this better than just making a manual payment that’s more that the minimum? 

Two reasons spring to mind:

1. It avoids you forgetting to make the manual payment on time
2. It puts the ball in the card provider's court, in that it's their responsibility to both calculate and claim the payment at the right time

CliveOfIndia

hobn_162 said:

Just really wanted to ensure that it was okay to just pay off what I can while I need to. 

Absolutely fine - as long as "what you can" equates to at least the minimum payment.

As others have said, setting up a DD for the minimum means you'll never forget (you can change this to be "full amount" later on if you wish).  Obviously it's your responsibility to ensure there are sufficient funds in your account to cover the DD.  But even that is not difficult to monitor - when you get your statement, it'll say what the minimum payment is, and it will also tell you the date they'll be collecting the DD.

If you want to make an additional payment shortly after the DD is taken then fine, that's to your advantage, but as long as you've paid the minimum then you're covered.

Just be slightly careful about making an extra payment shortly before the DD is due to be taken.  Depending on the bank's own policies/procedures, and depending on the timings, you can sometimes find that the DD for the original minimum will still be taken.  Not an issue as such, as it'll mean you're paying your debt off more quickly, but it could potentially cause problems if you're down to the wire on available funds in your account.

76mullan

I I used to have a credit card and the debt quickly added up as I was only paying the minimum amount as that was all I could do and it spiralled out of control and I had to ask for help so a family member helped me out, don’t want to go to the extreme of being made bankrupt!!

CliveOfIndia

76mullan said:

I I used to have a credit card and the debt quickly added up as I was only paying the minimum amount as that was all I could do and it spiralled out of control and I had to ask for help so a family member helped me out, don’t want to go to the extreme of being made bankrupt!!

It's no secret that if you only ever make the minimum payment then it'll take you ages and cost you a fortune to clear the debt - it even warns you of this on every statement you receive.

But that's not quite the same as the situation described in this thread - the OP is simply concerned about any negative consequences of paying the minimum/slightly more than minimum for a relatively short period of time.

hobn_162

Thanks, I am really conscious of the situation and have always been paying more than what the minimum is, to clear it as quick as I can. 

As I am aware it can spiral, but for me this shouldn’t be going on after April. 

As above, I was just getting concerned about what the other negative consequences are for just paying off ‘what you can’ (of course at least the minimum) rather than paying off in full when you can’t at that present time. As long as it’s okay to make payments of the minimum/or in my case more than this, particularly if this is temporary. 

I’m sorry to hear about your past situation and I’m glad you were able to reach out to a family member for help. I really would not want to get into a situation though either where it spirals out of control so definitely trying to avoid that.

SwanJon

CliveOfIndia said:

It's a little tricky to calculate precisely, as interest is calculated daily on each individual transaction.  If you've got just a single transaction of £1000 on the first day of your billing cycle and nothing else, you'll be charged 30 days' interest on that.  But if you spend £500 on day 1 and £500 on day 29, you'll be charged 30 days' interest on the first transaction and 1 day's interest on the last transaction (rounded to help illustrate more clearly, and ignoring 30/31 day months).  But hopefully you get what I mean.

A flip of this is that if you know you are not going to be able to pay the balance in full, the sooner after the statement date you pay, the lower the daily balance for them to calculate interest on. 
Probably won't make a big difference if you are paying min pay or just above, but if you are paying bigger chunks (e.g. over half the balance)  it can be noticeable.
If you are paying the full balance, do it closer to/on the payment due date and keep the interest for you.

hobn_162

Thanks for that information, so if I’m making a manual payment of more than the minimum (but not paying off full balance) it’s better to pay that manually as close to the statement date for less interest? Thanks! 

CliveOfIndia

hobn_162 said:

Thanks for that information, so if I’m making a manual payment of more than the minimum (but not paying off full balance) it’s better to pay that manually as close to the statement date for less interest? Thanks! 

At its simplest, the sooner you make a payment the less interest you'll pay, as interest is calculated daily on each individual transaction.

But you do need to be careful of terminology, especially concerning statement cycles.  Let's say your billing cycle runs the 1st to the 30th of the month (as before, a simplified example for the sake of clarity).  On the 30th, your statement is produced, it'll tell you what the statement balance is and what the minimum payment is.  You must pay the minimum before the due date.

Now, a hypothetical example where last month your minimum was £50, and you've spent nothing more on the card.  You think to yourself "Ah, I'll make a payment on the 10th for £75, that'll be more than enough to cover this month's minimum".  Yes, you'll reduce your balance by £75 and hence reduce the amount of interest you're charged.  But come the 30th, the statement will be generated and you still have to pay the calculated minimum (which should be less than £50).

That's probably making it more complicated than it needs to be, sorry!  But essentially the rule is: make payments whenever you can, as soon as you can, and you'll reduce your interest.  But irrespective of any interim payments you've made, you must still make the minimum payment when you receive the statement.