Failing to listen to this advice could see 1p “cost as much as £1,000”
A finance expert has issued an “important warning” about credit cards. Failing to listen to this advice could see 1p “cost as much as £1,000”.
Many Brits use credit cards on a regular basis. They allow you to make purchases or withdraw cash up to an agreed limit. Unlike a debit card, it uses borrowed money that must be repaid later.
However, most credit cards apply interest to the borrowed money if you fail to pay back an agreed amount each month. Martin Lewis, the founder of Money Saving Expert (MSE), explained how this could catch a lot of people out.
In a video uploaded to the MSE website he revealed that a little-known rule could mean 1p ends up costing you “as much as £1,000.” Martin said: “This is an important warning about the way that credit cards work.”
As an example, he asked viewers to imagine they’d spent £1,000 on a credit card, and then paid off £999.99. While you might think that means you only pay interest on the remaining 1p, that is not actually the case.
Martin continued: “Imagine you’ve spent £1,000 on the credit card. If you then pay off the £1,000, so you totally clear it, there is no interest in the month.
“But if you were to pay off £999.99, so you’re just a penny short, you don’t pay interest on a penny for the month, you still pay interest on the entire £1,000.” This could end up costing you a lot more than you would have originally planned for.
“This is why for years, my catchphrase has been pay off your credit card in full – the ‘in full’ is important,” he said. “I talk about it when it’s a credit card reward, say for getting cash back, or for cheap spending on a credit card abroad, because if you do the in full you neuter the credit card’s ability to charge you interest.”
He added: “If you miss even a penny, it can still charge you a whack.” On the MSE website, it offers further advice on credit cards.
It also warned about missing your monthly minimum payment. MSE said: “Your monthly card statement will tell you the total balance you owe, the minimum repayment you must make and the due date. Missing the minimum payment will result in a late fee and a mark on your credit file for up to six years.
“Yet only making the minimum repayment can keep you in debt for years and even decades. So, if you can, it’s always best to pay as much off as possible.”
For more information on credit cards, visit the MSE website here.
