h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

In most countries, if you do not pay the FULL amount of the card statement on the due date, interest is debited on each purchase from the date of purchase and added to next month's account.

If you do decide to make use of a credit card for convenience or to actually save some money by using up to 45 days free credit, open a savings account (or similar interest-bearing account with immediate access to your money) and deposit an amount equal to the credit limit on your card.

If you have a month where there is too much month left at the end of the money and cannot pay in full, draw the full payment from your savings and pay the card IN FULL.

Don't use the card again until you have topped up the saving account to the full limit of the card!

This way you get up to 45 days free credit every month and the savings draw interest

Never use the credit card as a savings account. Whenever you buy, you spend your money first - not the bank's - but they still get the settlement discount!

My cc company regularly up my limit without asking me, so that would be an unasked for increase in the levels needed in your savings account!

Credit cards can be a good thing IF you pay them IN FULL every month. I use my card for everything, because I get a cash reward from the cc company for every pound of my balance. If I pay in full every month I never have to pay interest so it pays for me to use the card rather than cash. Also, while I haven't used that cash it is sitting in my interest-paying current account. A double benefit

Also, my purchases get insured if I use the card.

I repeat, this is only good if you always pay them off in full.

k

I've been known to ring my credit card company and make them put the limit down.

Aah! The unsolicited increase in credit limit story again!
I suggest you do what I do - I write back and say I do not require the increase and deny responsibility for any amount owing over and above the limit I applied for.
They soon reduce it again!

You do of course realise that every credit facility you have, be it morgage, credit card or overdraft facility reduces your available credit rating! Don't let them push you into more debt!

I actually thought that it was the other way around, that the more credit you have, the more they will give you? Especially if you pay it back nicely.

I bought a dining set once, £100 in a sale, spend a year paying it off at a tenner a month no interest, lovely. The next thing I know, the company are offering me a guarenteed £40,000 loan! So the fact that I could afford to pay off £100 with no problems made them think I could afford £40,000!

I believe that Linda is right--the more credit you have, the more banks etc are willing to give you. When a lending agency looks at you, they consider your DEBT to income ratio, not your credit to income ratio. More importantly, they look at how you've managed debt in the past: did you pay on time, etc. That's why Linda was so attractive to that company. That's also why people who have never had any debt have such a hard time getting credit. So, debt can be your friend as long as you manage it properly.

On a related note: a stockbroker once told me that the best investment you can make is to pay off your credit cards: a guaranteed 18-20% return on investment.

The next best is to over-pay on your mortgage. Many mortgages in the UK will allow you to do this. If you pay twice the monthly amount you can reduce a 25 year mortgage to about 7 and a half years! This is so profoundly shocking and counter-intuitive, that most people don't realise it.

It is worth working out every year what you can afford to pay on your mortgage each month, and paying that ammount plus a little more for discipline and virtue, and setting up the standing order accordingly.

Of course you have to have the sort of mortgage which allows you to over-pay. Many have penalties if you do, because it is so bad for the lenders if you do it.

(Note to self: Phone the Halifax THIS WEEKEND).

Ben

My 'early redemption' penalty clause expires this month but I don't know whether to chuck a load of extra money at the mortgage or keep it in savings. I anticipate wanting to move house over the next year or so anyway so I am not sure whether it is better to have more liquid cash or more equity in the house.

Its a tough choice, on the one hand I would be paying less interest on the mortgage but on the other hand we would need at least 10% deposit for the next place and not everyone is happy to accept that the money is in the equity of the house you are selling. In actual fact what I will probably do is prevaricate indefinitely and never do anything!

*must do some research*

Down here in SA you get an animal called an "access morgage loan". They will let you use your morgage home loan as a sort of savings account - you put it in whenever you like and you can take it all out again whenever you like - after all, they do hold the largest asset you own as security.

Used well, you can utilise the surplus home equity instead of and expensive HP. Get a quote on the HP Agreement, "borrow it" from your home loan equity and "pay yourself back" at the same monthly payment as the HP. No high interest rate and no hidden charges. You are paying cash to the supplier so you get a discount too! When you've paid it all off in about six months less time than the HP, you can do it all again, if you'd like.