@101 during a month (not necessarily a calendar month, just a month of time measured by your balance period) you charge your card, at the end of that period you have a statement balance. Until the end of a balance period, you are not expected to make a payment: it’s only once a statement has been issued for a period that you need to make payment. You are “carrying a balance” if charges from a previous balance period remain unpaid once you have completed a new balance period. If you make a purchase on the 4th of June, you would not expect to pay for it until your July 12th payment.
For example:
You have a credit card that has a balance period starting on the 10th of the month
On June 20th you charge £100 to the card
On July 10th a new period starts: a statement is produced, you charged £100 to your card in the previous period so your statement balance is £100
You pay your £100 statement balance at the end of July, and incur no interest
Another example:
You have a credit card that has a balance period starting on the 10th of the month
On June 20th you charge £100 to the card
On July 10th a new period starts: a statement is produced, you charged £100 to your card in the previous period so your statement balance is £100
You pay the minimum (around £5) on your due date
You can now expect to start paying interest on the £95
Generally if you expect to carry a balance you should find a credit card that has an interest free period and then when that period ends you switch to a new card with an interest free period: rinse and repeat to maintain interest free spending while carrying a balance. Personally I’d recommend against carrying a balance as a regular thing – simply because it’s very easy to dig yourself deep in credit card debt – but it’s possible to avoid interest while doing so, it just requires a little effort.
The most responsible way to use a credit card is to simply set up a direct debit that automatically pays the full balance every month, that way you’ll never incur any interest charges and you can be confident that you aren’t at risk of building up any (bad) debt.
Small note because this has come up before: some people think that they should pay off their credit card every week[1], because either they don’t like the idea of carrying any debt or they think it will benefit their credit rating. At the end of your balance period your balance is reported to the credit referencing agencies which is good. If you pay off your balance through the month, then your responsible spending won’t be reflected on your credit report and you will lessen the benefits of being a responsible credit user. The perfect way to manage a credit card (for avoiding debt, building a good credit rating, avoiding charges) is to have a direct debit that pays the full balance every month.
[1] Someone once said (on another personal finance forum) that they paid their credit card off every time they made a charge to it which was both scary and funny to imagine someone going to all that effort, the wasted hours of their life!
It’s generally financially sensible (IMO) to use a credit card for all purchases. The protection offered by credit cards combined with the potential rewards make it a real ‘no-brainer’. Even if you have a card offering a straightforward 0.5% cashback, this money is better in your pocket than someone else’s.
That said, this only works if you pay your statement balance in full every single month. Failing to do that just once will likely wipe out all rewards, and for borrowing you’re likely to find a lower interest rate (or an interest-free period) on a different card with no rewards.
The other ‘gotcha’ is that many people find budgeting much easier on a debit card. If you don’t have the will-power to only spend what you can afford to pay off then using a credit card might not be a good idea. Sometimes the simplicity of seeing exactly how much you’ve got to spend and analysing your spend on your debit card is really advantageous and helps save more (Monzo is great for this).
I would say that it’s worth everyone having a credit card for emergencies. Keep in in a safe and let a couple of monthly subscriptions get charged to it with the balance paid off in full automatically every month. This will maintain some degree of credit-worthiness and also give you a card for emergency use if necessary.
I put money aside at each pay day to cover the credit card. I know roughly what I spend , so I just pay it off when I’m notified of a statement.
I always have a direct debit setup for the minimum but I prefer to pay the balance myself. For me personally, it just allows for a scenario where for some reason I couldn’t pay it all off, I wouldn’t want it coming straight out my bank. It’s not happened thankfully.
@101 Definitely check out the Money Saving Expert credit card section(s): they have a breakdown of every card and what they’re ideal for. I have heard a lot of great things about the Halifax Clarity for travel given the 0% exchange rate – I have the card but haven’t used it for a few years so can’t say from personal experience if it’s good today.
Personally if you’re looking for rewards I’d highly recommend American Express, their quality of service is fantastic and their rewards are rarely matched. Although American Express has a reputation for low acceptance, nowadays it’s accepted in most places and you can keep a secondary Mastercard or Visa for the rare occasions you can’t use it.
Side note, specific to emergency cash: cash from a credit card is generally bad because it’s treated as a cash advance that is recorded separately on your credit report. This can be seen as a sign of financial stress: taking out cash from a credit card implies very strained finances. This isn’t an absolute: every now and again isn’t a problem, maybe once or twice a year, but ideally you should have an alternate plan in place if you expect to need to withdraw cash abroad because it reflects poorly and is expensive – typically you pay interest on cash advances from the moment it’s withdrawn.
If you want to use Monzo’s budgeting features with a credit card that you pay off each month, you could consider using your credit card for purchases from a single category.
For example, you could always buy fuel on your credit card, and put the monthly direct debit under the “Transport” category. This will keep up regular payments on your credit history while allowing you to take advantage of Monzo’s budgeting and summary features.
@101 Curve is a “magic” card that routes payments to other cards based on your settings. You’re issued a Curve card (a Mastercard) that you can make charges to, then you log in to the Curve app and add your real card details, then you make payments with your Curve Mastercard but when Curve receives the charge they (unbeknownst to the merchant) charge the real card you have specified in your app – you can even go back later and change which card is charged.
Curve is helpful because it means you can bypass certain restrictions, for example if a retailer only accepts Mastercards, you could use your Curve (because it’s a Mastercard) and then in the background Curve charge your Visa.
As part of Curve’s offering they provide fee-free foreign exchange and up to £200/month of fee-free overseas cash withdrawal. They won’t charge you any fees and because they’re charging your real card from their UK merchant account, your real card doesn’t incur any foreign exchange fees because Curve have magically converted your foreign charge into a GBP charge. Their cash withdrawal is – as far as I know – just a pass through of a cash advance, so it doesn’t avoid the credit history issues: it just avoids the foreign exchange fees you might face (by charging the cash advance as a UK merchant).
The big caveat with Curve is… they’re not well regarded by some companies in the payments industry. The way their product works isn’t something that was intended to happen so they exist in a bit of a gray area. They have good relationships with Visa and Mastercard but their relationship with American Express isn’t good, so much so they’re currently unable to work with American Express cards which greatly reduces the value of Curve.
Curve is an interesting product with value to some people: if you have a single UK card that you want to use without fees abroad then Curve is a great option, likewise if you have lots of cards and you don’t want to carry them around then Curve is a great option. However, the lack of American Express support is a hindrance and some people don’t like that their statement is no longer accurate (because it’s all charged by Curve, although they do pass through merchant codes and the merchant name in the description).
One other thing with Curve is that you may lose Section 75 protection. Curve is a debit card and if your underlying card is a credit card there is no direct relationship between that credit card and any merchant you might have a problem with. You would have to take up the issue with Curve and hope a chargeback can be made.
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phildawson
(Sorry, I will have to escalate this.)
34
For those that do have one, how do you balance your Debit and Credit spending so you aren’t spending more than you have to pay it off? Do you buy everything through a credit card and pay it off once a month, or only use it for >£100 purchases and Monzo for everything else (I guess putting the same amount spent on credit into a pot ready to pay so you know how much you have left)?
I have the reverse issue of the OP where by I don’t have and have never used a credit card.
I hardly ever make > £100 purchase where I’m not there in person like a restaurant. I use PayPal for as much online as possible which gives some protection in getting a full refund. The vast majority of my purchases are also Sainsburys and petrol of which my permanent double Nectar points helps so cashback at retailers isn’t a bonus to me.
My credit report history is decent too. I’m struggling to justify getting a credit card.
That’s the exact same point raised by Frank Abagnale, the guy that had “Catch Me If You Can” story based on. It’s a good piece of advice (I personally don’t practice thought), especially because a few months ago my Monzo was cloned and someone tried to buy 2 Shark Vacuum Cleaners, each over £400. The only reason they weren’t able to buy, was because I keep my account with the bare minimum for the week, and the overdraft limit very low too.
Here is the interview where he talks about it: https://www.youtube.com/watch?v=vsMydMDi3rI
