Direct Debit minimum payments

ashby

In this week's email Martin :money:recommends using a direct debit to pay the minimum payment on your card as a good way to ensure you never forget/miss a month. Then you "top up" whatever you can afford by phone or online to avoid only paying the minimum. Forgive me if anyone else has already brought this up but I had a problem using just this strategy with a LloydsTSB Platinum card. It took me a few months to realize what was happening but each time I paid extra, they suspended the direct debit till my extra payment was "used up". Thus if the minimum was £50ish and I made a payment of £150 as a bit flush that month, they would not collect the direct debit for that month or the following two. A small extra payment was simply deducted from the minimum. So I was making no headway and effectively only paying the minimum for six months or so last year. I have now switched to a fixed amount and was told that would ensure any overpayment I made would also be deducted but if/when i do that, I will be checking.

Scribble

Yep.

In this case, using a standing order to pay the monthly cost saves this, as it's non-variable. You need to make sure it alters with your balance, but as long as your card is going down, then you can just let the SO overpay, and you can get to the point where you are paying healthy chunks off and not missing the money because you're used to it not being there. It's what I'm doing at the moment.

If it's going up, then you could possibly have direct debit too. Make sure the SO comes out before the DD is calculated and this *might* mean that is simply mops up any shortfall. It might take a bit of stealth to do that, I'm not sure how and when these calculations happen. If it's indeed possible and you find your SO isn't covering it and the DD is kicking in, you can raise the SO the next month. I've not tried this kind of thing out as I'm not putting any new transactions on my card so it's just going down.

YorkshireBoy

Scribble wrote: »

It might take a bit of stealth to do that, I'm not sure how and when these calculations happen.

You need to time the additional payment so it arrives in the period between the date which is 4 working days before your payment due date and your statement date - in practice, a window of around 7 days only. However, since interest is calculated on a daily basis, then the sooner you make your additional payments each month the less interest you will incur.

Be aware though, that if you constantly 'beat' your DD, and the DD is not called because of your additional payment, then your DDI will lapse with your bank due to the 'dormancy rules' (13 months/400 days of inactivity).

ashby

Thanks Scribble. I hadn't thought of using a SO for credit card payments, it's not a method they suggest, is it and I hadn't realized the differences. I use d/ds for everything except my rent currently.

rosiedee

Is this common practice with direct debits? I've just set them up on all my accounts so that I don't loose the deals I'm on by paying late, don't usually but don't want to risk it. It sort of defeats the object if you can't make extra payments.

Scribble

ashby wrote: »

Thanks Scribble. I hadn't thought of using a SO for credit card payments, it's not a method they suggest, is it and I hadn't realized the differences. I use d/ds for everything except my rent currently.

The DD suits them from 2 angles - you always pay the minimum payment unless you do something else about it and therefore you always pay the maximum interest for a healthy account. It benefits them greatly not to take a penny more out of your account