Can someone help dumb this down (even more) for someone who's trying to learn credit card basics...

Jj13

Hi!

So for the past few years, I've made tried to make the effort to learn about credit cards and how they work, but for the life of me, my brain just can't grasp even the most basic of information in relation to how they work, when to use them, when I should pay off a credit card etc. etc.
I don't know why I'm struggling to learn... I think it's partially that I'm being too cautious and just really don't want to get caught out and then end up paying loads of money.
So, today, I thought about purchasing an item that costs £80. Now, I do have the funds to cover that cost, but ideally, it would be better if I were to be able to pay the cost in monthly instalments is this where I can use a credit card?
This is what my card terms say:
"There is 0% interest payable on Transactions made under this Agreement if repaid by the Due Date shown on your Monthly Statement, or by any Extended Due Date.

Interest on Monthly Payment Plans will be charged at 27.9% per year.

In addition, you may have to pay other charges depending on how you manage this Agreement (see Sections 3 and 6 of this Agreement).

Total Amount Payable

The amount payable will be shown on your Monthly Statement and will depend on your use of the

Card. For example, if you immediately make a Transaction or Transactions totalling £800, these will

be added to your Monthly Statement and you will be required to repay £800 on the next Due Date.

This assumes that you do not break this Agreement in any way, that you do not elect to Extend Due

Date on a Transaction, or apply to Convert any Transaction or Transactions to Monthly Payment

5

Plans. If one or more of those things should happen, then you will be required to pay more than

£800.

Paying in full on your next payment date is interest free (0% APR).

However, if you make a successful Conversion application for any Transaction or Transactions it's

27.9% APR for whichever Monthly Payment Plan you choose. If you miss a payment you will be

charged a late fee (see section 3, "Card features and fees")." 

So does this mean, if I were to purchase the item using the credit card, I would have to pay the £80 back by the following month otherwise (the remaining balance) would charged 27.9%?

I'm obviously not going to be using a credit card until I fully grasp how to use them properly, so any help would be much appreciated by myself and my lump of a brain.

Thanks in advance!

Uriziel

Yes what you are saying is correct. You can buy the item this month. Next month they give you a statement with the cost of the item showing and a date by which you need to have paid which usually will be end of that month and if you pay it until then you do not pay any fees.

You wrote in the beginning you want to pay in instalments. That does not work with credit cards unless you take out a 0% credit card which means that for an X amount of months you do not have to repay except the "minimum payment" which they tell you. For example you can make a purchase of a £100. Your card is 0% for 24 months. The credit card company will tell you to make the minimum payment of £5 a month which you will have to do. If you fail to do this they will revoke the perk and start coming after you for the full debt.

There are some people that take out a 0% card for the sole reason of making a big purchase and paying it in installments.

Caz3121

Some cards come with an initial x months at 0% which will allow you to make a purchase and spread the cost over the length of the offer without incurring any interest
https://www.moneysavingexpert.com/credit-cards/best-0-credit-cards/

If you do not have a card with an offer you would pay interest from the date of the purchase until paid in full unless you paid your full statement balance off when due

BridgetTheCat

Would a worked example help?

My credit card statement date is 11th of the month, and I need to pay the balance in full by the 5th of the following month to avoid interest charges.

So if I were to buy your £80 item today (2nd December) it would appear on my statement on 11th December and I’d need to pay the statement balance by 5th January. If I waited until 12th December to spend the £80, it wouldn’t appear on my statement until 11th January and I would have until 5th February to pay up.

If you want to use a credit card to spread the cost of purchases, you need one that offers 0% on purchases for a period of time. Let’s say you get one with 0% on purchases for 12 months, and make your £80 purchase on day 1. You could then pay the minimum payment (usually £5 or 5%, whichever is higher) for 11 months and pay the balance at the end, or you could divide the £80 into 12 equal payments and pay that each month. 

Of course if you make additional purchases during the 12 months you’ll have pay those off too and with less time to spread the cost. This is why I don’t use credit cards in this way.

vacheron

When I explained them to my son recently I used a friend in place of the card company. 

I explained that basically a credit card is like a friend who pays for all your shopping for you during any given month (Lets say from the 1st of January to the 31st of January).

Then, when January is over, they add up everything they have bought on your behalf and give you the total bill, but they also realise that you might need a couple of weeks to get the money together, so they say that as long as you pay by, lets say, the 19th of the following month (February) they won't charge you any interest. However, if you don't pay off all your January purchases by the 19th of February, they will begin charging interest on any outstanding amount from that you still owe, usually at a rate of between 20-30% per year.
This would be akin to a standard credit card. 



..... however, If that friend really trusts you, they may say, "actually, for the next 12 months, as long as you pay me a few percent of the amount you owe me each month, (just to prove you are still there and trustworthy), I will not charge you any interest at all on everything you buy for the next 12 months, even if you don't pay it off. However, after the 12 months has ended, I will start charging you interest at 20-30% again on anything you haven't paid off by this point.
This would be akin to a 0% purchase card.

mta999

Just to be clear - if you don't pay off the month's purchases in full then interest will be charged from the date of purchase for each item 

kimwp

BridgetTheCat said:

Would a worked example help?

My credit card statement date is 11th of the month, and I need to pay the balance in full by the 5th of the following month to avoid interest charges.

So if I were to buy your £80 item today (2nd December) it would appear on my statement on 11th December and I’d need to pay the statement balance by 5th January. If I waited until 12th December to spend the £80, it wouldn’t appear on my statement until 11th January and I would have until 5th February to pay up.

If you want to use a credit card to spread the cost of purchases, you need one that offers 0% on purchases for a period of time. Let’s say you get one with 0% on purchases for 12 months, and make your £80 purchase on day 1. You could then pay the minimum payment (usually £5 or 5%, whichever is higher) for 11 months and pay the balance at the end, or you could divide the £80 into 12 equal payments and pay that each month. 

Of course if you make additional purchases during the 12 months you’ll have pay those off too and with less time to spread the cost. This is why I don’t use credit cards in this way.

Additionally to this last point, with 0% offers, things can get quite complicated - for example, purchases in the first three months could be interest free and you only need to pay the minimum to not pay interest. But if you make a purchase after the first three months, this would have to be paid in full. Similar things with mixing balance transfer offers and normal purchases - all depends on the terms and conditions. Best to start with paying everything off in full every month before venturing into these (and then make sure you understand the terms carefully)

WiserMiser

@Jj13 Don't even think about 0% interest credit cards if you're not completely sure how ordinary cards work.  You'll only end up getting your fingers burned.

The basic rules are quite simple.

• Set up a direct debit with your bank to pay off the FULL amount automatically each month.
• Remember what your credit limit is and don't get anywhere close to exceeding it.
• Don't buy things you don't really need or can't afford (except a flat or house with a mortgage), just think of a credit card as a convenient form of payment with added protection for items over £30 but under £30k if you pay the seller directly (not via an agent).
• Never rely on just one card, especially when abroad.  It could be lost/stolen, retained by an ATM, or its network could go down.  Have at least two cards on different networks (e.g. MasterCard, Visa, American Express) and don't keep them all in the same place.

MSE has full info on the best cards, but here are two worth considering:-

Aqua - 0.5% cashback, good if you don't have much credit history or a poor rating.

Barclaycard Rewards: 0.25% cashback worldwide, no extra charge for foreign purchases.  Most unusually it doesn't charge any interest on foreign cash advances if you pay in full by the due date (although the foreign bank may charge an ATM fee).