Managing a credit card responsibly after being in debt with a DMP/defaults

np1v08

Hi all, I've just got my first new credit card in over 10 years after a period of being very in debt (all old CCs are closed/paid off). I'm looking for some advice/pearls of wisdom on how to manage a credit card so that it works to enhance my financial status/credit-worthiness, and generally make life easier!

For context, I had a terrible relationship with money/debt my entire adult life (learned behaviour from my parents, I suspect). I made some terrible decisions, using my ccs with very little restraint. By 2019 ended up with over £40k debt on various cards and a bank loan. However, I've paid off the debt after setting up a DMP and my credit files are now looking a lot better now the defaults have dropped off. This year, I decided I wanted to have just 1 credit card, partly to feel like a proper adult again, but also as a tool to help strengthen my credit history moving forwards.

I did the preapproval checks first (old me would never have bothered with that 😉), and I was pleasantly surprised by my options. I went for the Barclaycard Avios and I've got a £5k limit. I am scared of messing up again or ending up in persistent debt. So, how do you all pay off your balances every month. How does a direct debit work so it knows to take the full balance? My statement day will be the 10th working day of the month, so what date would you recommend I need to set up the direct debit for? Finally, I believe some people make 2 payments a month so what is the reason for that? Any advice, suggestions or comments. esp from anyone who been in the same position as me, most welcome. Thank you for reading this.

eskbanker

The value and scheduling of a full payment direct debit are in the control of the card provider, so you don't need to consider these, beyond making sure that you have enough funds in your current account on the day it's taken, the date and value of which will be advised on the statement.

ellenvan

The credit card provider will set up the direct debit to take the full amount at the right time if you request them to.

MasterG83

Best way is to not have a credit card at all. After 30 years in debt I couldn't wait to get rid of mine.

A credit score is just a means of measuring how good you are at managing your debt.

molerat

Don't judge everyone by your own inability to manage credit. I am quite happy with £6K of their money in my savings account earning me £30 pm in interest. Plus with a credit card you have increased consumer protection. Also pay at pump petrol stations require you to have £100 in the account it will debit unless you want to dribble a few £s worth in, I rarely have that much in my current account.

ellenvan

Also nearly impossible to book a hire car or some hotel's without a credit card.

Dobbibill

Welcome to the forum

set up a DD with the CC company (you may have to pay your first statement manually if the set up timing is off so make sure you read whether that is needed on your statement)

only spend on it what you would normally spend from a current account to ensure you have the money for the DD.

all the best

Nasqueron

https://forums.moneysavingexpert.com/discussion/comment/82037365#Comment_82037365

Credit scores are meaningless marketing gimmicks that no lenders see or use, it is a measure of how the CRA may see you, but they don't lend money!

A credit card is very useful if only for the S75 protection on top of chargeback rights. With a good credit history, a rewards card like Lloyds Ultra or AmEx means you earn money for spending on day to day items!

born_again

https://forums.moneysavingexpert.com/discussion/comment/82037365#Comment_82037365

A credit score is just a means of measuring how good you are at managing your debt.

It is a meaningless figure made up the the CRA's. Nothing more or less.

enthusiasticsaver

A credit card if managed responsibly can be useful for the S75 protection and to show lenders you can manage money responsibly.

If you are likely to be tempted to overspend again though and get into unmanageable debt it would be better not to get the card as the risks of you making your situation worse would outweigh the benefits of having a credit card.

If you think you can manage the card then my suggestion is you set the direct debit to pay off in full. One good way of managing the card is to use a bank account with savings spaces in it like Starling and if you spend on the card move the money out of your spending space and then you will have the money set aside to pay the bill when it is due.

Jami74

https://forums.moneysavingexpert.com/discussion/6672833/managing-a-credit-card-responsibly-after-being-in-debt-with-a-dmp-defaults

Set the direct debit up to pay in full. Do this now, don't wait until you've got the statement. Then it's job done, no need to make regular additional payments. When you get the statement it should tell you how much is due, what the minimum payment is and when it is due. It will hopefully also confirm that there's a direct debit in place.

Are you planning to use it for all of your spending or just some? You could start just with your grocery shopping or just your fuel/transport, if that felt easier.

With my first credit card I was really worried about messing up and not having the money ready to pay it when the direct debit was due, so I transferred the amount spent into a savings account (linked to my current account) to keep it safe and then transferred it to the current account the day before the direct debit was due. This also stopped me from spending money I didn't have.

Mindset. Credit card isn't your money, it's just having access to your income before you've received it. So if you wouldn't spend it as £10 notes out of your wallet or balance out of your current account or digits from your savings, then don't spend it with the credit card either.