Credit card holders issued alert as 1 mistake can ‘hike interest’ | Personal Finance | Finance

Anyone possessing a credit card has received crucial guidance or they could face soaring interest rates, and it comes following recent credit card advice from Martin Lewis. James, who provides financial guidance online, has highlighted a vital point regarding personal finance that people must understand.

For credit card owners, this is something requiring careful monitoring, as it could significantly affect you. The financial guru, recognised as James Does Finance on TikTok, recently warned people must steer clear of one blunder as it could prove extremely costly over time.

This isn’t the sole consideration for credit card management either. A few weeks ago another warning was issued to people who have both credit and debit cards. 

James explained: “Avoid this one crucial mistake when it comes to paying off your credit card. So, most people in the UK are probably familiar with a credit card, and the fact that you essentially have to pay off your balance at the end of every month after all of the payments that you’ve made with the card.

“But, you’ll often get two options when it comes to paying the card. You’ll get the option to set up a direct debit that essentially pays off either a fixed amount that you specify or the statement balance, so you don’t accrue any interest, or you’ll have the option to essentially just make the manual payment yourself.”

He added: “Now it’s really important, if you go down the option of a direct debit, that you set this direct debit up in time because, what you might find is, say it comes to three days before the payment due date on your credit card, say you owe £1,000, then you’ve got pay this £1,000 by that due date.

“However, if you were to set up your direct debit maybe three days before, then what you could find is actually the direct debit isn’t live until five days after you’ve set it up because it takes the credit card company a while to set this up.

“So it’s really important that, if you do set a direct debit up, that you ensure it is in action before the payment due date. Because, what you could find is, you set up your direct debit a few days before thinking that your statement balance is just going to clear, but what actually happens is it doesn’t because the direct debit hasn’t been finalised until after the payment date.

“And, then what you’ll find is you’ll actually then owe the credit card company interest, which can be massive. You know, some credit cards can be sort of 80% interest.

“So it’s really important that, if you go down the option of setting up a direct debit with your credit card, that you really make sure that it is in place before the payment date.”

For those unaware, missing a credit card payment will likely result in a late fee being imposed and potentially a higher interest rate being applied. Additionally, your credit score may suffer a blow, with the missed payment being recorded as well.

This can stay on your credit file for approximately six years. Furthermore, if payments continue to be overlooked, your account could be “defaulted”, potentially resulting in debt collection agencies being employed and further damaging your credit standing.

Should you miss a payment, settling it as quickly as possible will yield the best outcome for you. This may help reduce the interest charges you face and could limit the adverse effects upon you.

Moreover, it’s prudent to contact your credit card provider immediately upon discovering a missed payment, as their advisers can assist you in exploring repayment options and resolving the situation. Naturally, each provider may vary in what they can offer.

You should always establish a direct debit ahead of the payment due date. The precise timing will vary depending on whether you’re establishing a new direct debit or making an additional payment.

Typically, it’s reported that a new direct debit may take between five and 10 days to establish, so it’s recommended to arrange this well before your initial bill. Conversely, if you’re making an extra payment to reduce your outstanding balance, this can be completed several days before the direct debit is due to be collected.

This should guarantee that it’s applied before the direct debit payment is processed. If you require additional advice about your credit card, get in touch with your provider for more information.