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Financial
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> Best
way to pay off monthly balance
Bear in mind that many credit cards will not charge you any interest
providing you pay the balance off in full by the settlement date
shown on the statement. If you have two or three different cards,
and you have enough to pay a reasonable amount off each one, or
to pay off just one in full, then you will be better off to pay
off whichever card you can meet 100 per cent of the payment on.
The reason for this is that even if you're just a few pounds short
of paying off the full balance, you'll be charged interest on
all outstanding balances from the date charge occurred.
This is illustrated in the example below:
· You have three credit cards, each with a £1000 limit, and you
owe £500 on each one. All three charge interest at 1% per month,
and offer a settlement time of 3 weeks from issuance of the monthly
bill.
You have £900 available to pay.
· If you simply divided your £900 into three payments of £300,
you would then be left with £200 outstanding on each bill. However,
as the balance is not being paid off in full, you will pay interest
on the £200 outstanding balance, and the period between when you
make the purchases and when a payment was received for the £300
you are paying off.
· 1% interest on the remaining balance = £600 x 1% + 1% interest
on the total balance before you made payment = £1500 x 1%.
Total: £6 + £15 = £21
· If, instead, you paid off one card in full, you will then have
£400 left to split between the other two, leaving £300 on each
card.
· You would pay zero interest on the card you pay off in full,
and 1% x £600 interest on the other cards = £6 + 1% x £1000 =
£16.
Therefore you are saving yourself £5 per month by paying off
one card in full. This adds up to potentially £60 per year, if
you were to do this every month.
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