Managing your credit card account

Money Advice Service

Credit cards can be a handy way to borrow if you use them in the right way – but get it wrong and you could find that your debts spiral out of control if you’re not paying off your balance in full or before the end of any promotional or 0% interest periods. Follow these simple tips on how to use a credit card and manage your expenses more efficiently.

Keeping your PIN secure

  • Don’t store your PIN with your card, or give it to anyone else. If you do, and someone takes the card and uses it, the bank won’t pay you back what’s stolen – they would in most cases if it wasn’t your fault.
  • Change your PIN to something you’ll remember. You can do this at most cash machines. Pick something you can remember, but not something like your date of birth that others could guess.

Checking your bill

  • Make sure everything on your credit card statement is for things you bought and query anything you don’t recognise. Keeping your credit card receipts means you can match things up, too.
  • If you get your statement online, it can be a good idea to check it on a particular day – say a week before the payment’s due – so you get in the habit of making sure everything is in order and that you pay it on time.

Plan to pay off in full each month

If you don’t completely clear your balance, you’ll usually be charged interest on everything on your card – not just the bit you haven’t repaid.

For example, if you ran up a credit card bill of £100 during the month and paid off £99 at the end you could be charged interest on the whole £100.

This depends on your card company – check the terms and conditions carefully.

  • Debts can spiral out of control. Because you pay interest when you don’t clear your card each month, debts can mount up and take a long time to pay off.
  • Interest charges and the way they are calculated vary considerably. Make sure you understand what happens on your card.

Avoiding the late payment trap

If you don’t pay your bill on time, there could be some serious consequences.

  • Fees and charges. You’ll be charged a late payment fee which could be as much as £12, plus interest on the whole amount you owe.
  • Increased interest rates. If you’re a repeat offender your card provider might increase your rate, reduce your credit limit or cancel your card.
  • Problems getting other credit. Paying late can damage your credit rating, making it harder to get other credit, mortgages, other cards and even phone contracts.

However, there are ways to avoid paying late:

  • Pay by Direct Debit. The best way to avoid the late payment trap is to have the money go out of your bank account automatically. Ideally, set up a Direct Debit to pay off the full amount every month.
  • Pay with time to spare. Although you can pay your credit card bill by phone or online from your bank the same day, it can take a few days to process your payment. So don’t leave it to the last minute.

Avoiding the minimum payment trap

The minimum amount you need to repay on your card each month is often quite small, but paying just this amount will cost you a lot in the long run.

You could be making repayments for years and end up paying more in interest than the original debt.

Let’s take an example of a debt of £1,000 on a credit card with 16.9% APR.

The minimum repayment for this card is 2% of the balance, or £5 – whichever is greater.

The first payment will be £20, but this figure will fall as you repay the balance.

The table shows how much you could save if you repay the same amount every month on a £1,000 balance.

Monthly repayment Time you take to repay Interest you pay Total you’ll pay back
Minimum (2% of balance) 22 years, 11 months £1,530 £2,530
£20 6 years, 10 months £635 £1,635
£50 2 years, 8 months £167 £1,167
£100 11 months £78 £1,078
£250 5 months £34 £1,034
£500 3 months £20 £1,020

Remember, if you don’t pay off the whole bill you’re likely to be charged interest on everything on the card, including new things you bought that month.

So if you keep spending on that card you’ll end up paying even more.

Keeping within your credit limit

Don’t go over your limit. If you do you’ll be charged a fee – normally up to £12.

It’ll also have knock-on effects on your credit rating too.

Contact the card provider to request an increased credit limit if you think you need to put more on your card.

But only do so if you’re sure you can comfortably afford to repay the higher amount – and won’t be tempted to over-spend and rack up more debt.

Avoiding cash withdrawals or credit card cheques

Credit cards aren’t like debit cards – you can’t withdraw cash for free.

You’ll pay fees and higher interest than normal, even if you pay off your card in full at the end of the month as there’s no ‘interest-free’ period, unlike purchases.

Other transactions can also be treated like cash withdrawals, and attract the same interest rates and charges, such as:

  • buying postal orders
  • gambling transactions
  • competition entry fees
  • buying foreign currency
  • paying for something with credit card cheques (always avoid using these).

Avoiding recurring payments on your credit card

A recurring payment, sometimes known as ‘continuous payment authority’ or CPA, lets a company put the charges onto your credit card bill automatically.

But it’s not as safe as a Direct Debit from a bank account.

To cancel a recurring payment, contact your card provider and tell them that you withdraw your permission for the company to take payments.

If payments are taken after that, the card provider must refund this money to you along with any related charges.

But you have to let them know no later than the end of the previous working day.

Recurring payments are best avoided because of the danger that you won’t realise how much is coming out of your credit card account, and you might go over your credit limit accidentally, leading to charges.

Protecting your payments

If you’re worried that something might happen to stop you making payments on your credit card debt (perhaps if you lose your job) there is insurance you can buy.

But think very carefully before going for it, as:

  • it can be expensive
  • it often comes with conditions and exclusions
  • you might already be covered by another insurance policy.

This article is provided by the Money Advice Service.

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