88% Of Us Don’t Know This About Our Credit Cards

hi, don't know if you're aware of this, but some cards, although giving "upto 55 days" interest free, will actually put payments you make towards recent transactions before clearing off the older transactions, meaning you'll need to pay your whole balance instead of just paying for the transactions that are 2 months old to avoid the interest. Working for a credit card company myself i've seen this catch people out alot of the time when they want to pay their card off manually in full every month, instead of using a direct debit

Hi - the person from the credit card company above is correct - i also work for a major credit card company and the interest free period is a massive con. The longer the period the more interest you will end up paying - unless you clear your balance everymonth (in which case the length of the period is redundant). Extending the date past 45 days pushes the day you start to accrue interest into the start of your next payment period, giving a longer time before your payment. I.e. rather than paying interest on 15 days between your cycle date and your payments date you end up accruing for 29 days (this is why you won't see 60 days int free, as this would start to reduce the days of interest accrual). The card companies are laughing all the way to the bank as this now tends to get listed in best buy tables despite the fact it will cost you more.

If you are able to access your credit card account via the web, this is an excellent way of keeping track of what's going in and out on a daily basis thereby reducing the margin for expensive errors. I have a Goldfish and Halifax card, and I keep a strict rein on all my purchases. When the bill comes in, I go on the web, and clear the outstanding balance. If used responsibly, credit cards are a great convenience, but everyone should know that the credit card companies and banks are out to make money out of you - so the rule is to do it to them BEFORE they do it to YOU.

I also used to work for a credit card company - they didn't employ me, I just used to have to pay them so much......

I finally got my family spending under control and started to pay of the card balance every month. I went through the "good times" as a "card tart", ending up with nearly 20 card accounts and a notional credit availability sufficient to buy a house. When they started to charge balance transfer fees I soon worked out it was too expensive so I stuck with the cards that offer cashback. However I still can't get some of the unwanted card accounts closed, no matter there have been no transactions on their cards for years and I have called/written to the companies concerned. I still get occasional correspondence and replacement cards, indicating the card is still "active". No matter - I just cut the cards up and add the numbers to my CardGuard account for protection.

What's this to do with "interest free days? Well when I didn't pay off the card balance in full I used to try to delay payment until the latest date. Several times I was caught out because the bank's payment system is as unreliable as the postal system, payments would be credited to the card company up to 5 working days after my bank account was debited - even within the same bank group! I found if I called the bank/card company and pointed out the delay in transfer was unreasonable I could usually get the "penalty interest" cancelled.
So it seems worthwhile calling them to ask for some reasonable consideration if you do suffer system delays on your payments.

I'm shocked that this is news! I can infer 2 things from that 88% statistic:
1) hardly anyone pays their balance in full every month
2) the interest free period is such an integral part of the credit card that people didn't understand the question

I was unaware that any card would charge interest if the balance was paid off every month so the news to me is that I need to look out for another catch from these companies. From the article and comments I understand there are 2 ways interest is charged (other than if you don't clear the balance):

a) I buy something and interest is accrued immediately and will appear on the monthly statement
b) I spend £100 before a statement is issued and another £50 afterwards. When the statement arrives I pay off the full £100 quoted balance. This money is used first to clear the spending since the issuance of the statement and then the balance, so I'm left with £50 on the card, which is money I spent over 1 month ago, and is accruing interest

Am I right?

I'm firmly in the - only spend what you can afford - camp so simply use dd to pay off the debt each month, the interest free period I thought was the whole point of credit cards, use only as a convenient way of paying (although that now at risk courtesy of criminals).. if you are permanently in debit for say £100 you have only had that credit once so why incur it in the first place?
think the article would have more relevance to lower end tabloid readers (results of 'a survey' always accepted without question) than most MFers, amazed that MF issue so many items on credit cards interest. But thanks to those that supply the obscene profits to the cos (14.9% a relatively low apr?) they don't come after people that use their nous for other charges - even though suppliers probably increase prices to cover the charge they incur. if there's a charge for using a credit card we use a debit card instead.
we've even gone back to physically moving money between accounts in cash where possible to avoid cheque clearance problems.
still, each to their own.

The minute you get the bill you plan ahead and set it up to leave your bank account 4 working days before it is due

The working days bit is important - I'm sure my payment dates fall on a Sunday more than 1 time in 7. A store card I got recently has a Sunday as its first payment date, so it's getting closed as soon as it's paid. They'll not even be getting any goodwill for the 30% discount I got when I opened the account ;-)

sqnldrjimbojet, what i was trying to say was that the 59 days interest free will only usually work if you have a single purchase on your card. Say you make a transaction for £100 a day after your statement is produced, but then you want to wait '2 months' to pay it off, when your next statement is produced showing this transaction, make sure you don't make any other transactions until this is paid off in full, or your payments will go towards the recent transactions before the older £100 one. In my experience the easiest way to make credit cards work for you is like boracon said and use your credit card for all your regular purchases to earn cashback and make sure you pay in full every month by Direct Debit

over the last ten years iv used my 6 credit cards to fund my two now very succseful businesses could not have managed it without them had some scary balances but all in check now thanks guys

Incidentally, the very nice letters from the CC companies made it clear that the period is not 'interest-free' but 'interest-deferred'...

All I can add to that is, done people read there statements and paperwork

I am a card tart balance transfers and 0% purchases, invest in good interest earning accounts,pay by dd.
it works

With my apologies for quoting from Finance 101, in textbook talk all this is called "matching the maturities". In other words, the term of any debt must be matched with the useful life of the asset being financed. Credit cards are OK sources of short-term finance, but dangerous sources of long-term finance. By paying off any balance every month, on average 15 days finance is interest-free. With cashback cards, the deal can even be interest-bearing! Matching the maturities requires that one uses a credit card to finance assets -- groceries, fuel, current expenditures of all kinds -- that, on average, have a useful life of about 15 days or less. Any method of financing expenditure that fails to "match the maturities" will ultimately end in tears: only a matter of time.

@bimber
Unless your credit card is very unusual, the company will send a demand for payment monthly. Your purchases on day 1 are paid for on day 30, the purchases on day 29 are paid for on day 30. The average credit-free period is 15 days. Hard to grasp, I agree but it's a fact that any creditor knows. (An exception might be the very first month's purchases and payments on a new card.)
As for the accountants' quibble over what is an asset. For my car, fuel is a critical asset -- "asset" if you prefer -- but it is horribly short-lived, and therefore must be regularly renewed if I am to continue to enjoy whatever benefits my car delivers.
A house -- a long-term asset -- delivers regular benefits over its longish useful life, so an affordable mortgage makes good sense. If this is still a mystery, try things differently -- buying your car on your credit card and your weekly groceries on a four-year personal loan, and see how you get on.
Matching the maturities is an absolutely basic, rock-solid principle of all personal and corporate finance. Since, alas, too few people understand it, the credit card companies and loan sharks make vast sums, and innocent or, dare I say it, ignorant people get hammered flat. It's a tragedy!

Bimber writes: If you buy petrol every week on a credit card then you are not matching maturities.
Oh yes you are, if you pay off the debit balance at the end of the 30-day period. This is the whole point. My monthly fuel purchases last me on average a month, by definition. My average monthly expenditure on fuel has been 15 days fuel consumption. My credit card grants me, on average, 15 days interest free credit. I have therefore matched exactly, on average -- over a lifetime, say -- my souces of finance with my uses of it. Fifteen days consumption of fuel matched with fifteen days credit, interest free if paid at the end of the 30 day credit period. This is prudent stewardship of expenditure and credit.
Any other approach to matching the maturity of the asset or expenditure with the maturity of the source of finance leads, ultimately, to bankruptcy. Long-term assets, long-term finance: short-term assets, short-term finance, period.

Long-term consumer goods: cheapest finance you can get.
Short-term consumer goods: cheapest finance you can get.
Period.

Matching maturities is about productive assets, where the asset pays off the finance, it's not about consumables. That's why I used the example of fuel, which has a return because it can transport you to a better paying job. With the radio example I considered the return to be the enjoyment of using it, so that the finance cost could be compared. We don't really work that way though (I do sometimes, but that's because I trained as an economist), so we buy things as and when we need them and pay for them at the time if we can. Regardless of the lifespan of a TV, I should use my credit card if I can pay it off over a few months, rather than take out a 3 year loan, if the net present value of the repayments is less with the credit card than with the loan.

Naturally, I should consider the total cost including interest and decide whether I can afford it and whether it really is worth that much to me before I buy it. It's the failure to do this that leads to credit problems, it's nothing to do with product lifetimes matching the term of the loan.

If you really do match maturities then you would pay for your TV every month over its lifetime and it could end up costing you more. I doubt that you do this. Personally I save up and buy it on a cashback card. Incidentally, I do buy fuel in bulk, via an oil etf (but I don't do it on magin). If oil goes through the roof I can sell some and still afford to get to work whilst everyone else is blaming the government.

If you want to finance a consumer good over its lifetime then you can rent it. That's another way the credit companies have of keeping people poor. They'd do better not to think about matching maturities but about total cost and affordability, nomatter how long they borrow for.
Here's a link you might enjoy, hope it comes out ok.
http://www.moneyweek.com/personal-finance/why-you-should-never-rent-a-washer-dryer-36307.aspx

Can anyone from the credit card companies tell me if 0% balance transfer also take into account cash advances from the old credit card as part of the balance? So in effect you can borrow cash at the transfer handling rate plus the usual charge for the cash advance (2.5%).

here is what I discovered
At 00:39 on September 17 2008, meringash said:

balance transfer for 0% interest is dodgy in itself. I transferred balance onto MBNA mastercard. Payment got late by 3-4 days and they charged me interest onthe balance. On contacting them I discovered that if payment is late 0% interest free option is turned off automatically.... Brilliant!! Do we know about this when they offer 0% interest free balance

Is it just me who is ignorant of this fact or there are more ...

Why am I getting emails from you about credit cards so frequently? It seems that there are about three a week! It may not be quite as many but that is what it feels like. You should be discouraging credit cards, not encouraging them. Don't you realise that they are one of the reasons why we are all such in a mess?