Money Saving Expert founder Martin Lewis has issued a crucial credit card warning
A financial expert has issued an “important warning” regarding credit cards, cautioning that disregarding this guidance could see 1p end up costing “as much as £1,000”.
Brits routinely use credit cards. These cards enable you to make purchases or withdraw cash up to a pre-set limit.
Unlike a debit card, they use borrowed funds that must be repaid at a later stage. However, most credit cards charge interest on the borrowed money if you don’t repay an agreed sum each month. Martin Lewis, the founder of Money Saving Expert (MSE), explained how this could catch out many people.
In a video shared on the MSE website, he revealed that an obscure regulation could see 1p end up costing you “as much as £1,000.”
Martin said: “This is an important warning about the way that credit cards work.” To demonstrate his point, he asked viewers to imagine spending £1,000 on a credit card and then repaying £999.99. While you might think that means you only pay interest on the outstanding 1p, that’s not how it works.
Martin added: “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 ultimately cost you considerably more than you originally expected. “This is why for years, my catchphrase has been pay off your credit card in full – the ‘in full’ is important,” he stated.
“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.
