Why making credit card overpayments will actually cost you!

Credit cardsI have now either recorded or personally identified 43 different tricks that credit card companies use to make you either spend more money on your card, make you pay more interest or nab you with penalty fees and other costs.

And now another trick has emerged: if you make overpayments, some lenders will reduce your next direct debit payment by the amount of the overpayment, negating the benefit of overpaying.
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Lenders that are alleged to carry out this trick include Barclaycard, Lloyds TSB, Halifax, Bank of Scotland, Santander and even the popular Nationwide Building Society.

When you overpay, you reduce the interest you pay on your debt. This can be considerable. Every £50 you overpay today might easily reduce the interest you pay over two years by £40.

Also, if you're overpaying in order to clear your debt before a cheap introductory deal expires, you may be confused if you don't check your credit card statements every month to ensure your regular payments haven't been reduced.

Plus, reducing your debt more quickly puts you in a safer position whenever you suffer one of life's inevitable emergencies or unforeseen costs.

How to use your cards safely
There are too many card tricks to explain each one individually here, especially as some are quite complicated. However, I'll try to condense the 43 tricks into a few simple general rules to help you avoid or deal with most of them, including all the worst ones. These are:

  • Have an achievable budget designed to regularly overpay as much as you can afford.
  • You must always pay the minimum every month – even if you have a 0% deal – to avoid penalty charges, the loss of 0% deals, and damage to your credit rating.
  • If you just pay the minimum because you're on a 0% deal, ensure you save the difference in a savings account so that you can pay off the debt, or as much as you can afford, before the deal ends. Don't assume you'll be able to roll over the whole debt onto another cheap deal at the end of it.
  • Don't use credit cards for gambling, or buying gift cards or gift vouchers, or for taking cash out at a cash machine.
  • Don't buy foreign currency or postal orders with your card unless you've checked that it will be charged as a regular purchase, not as a "cash advance".
  • Don't get stuck on standard interest rates (APRs). Always shop around for another deal and make a note in your calendar when introductory deals are approaching their end.
  • Don't see your credit limit as a target and don't be tempted if you're "rewarded" with a larger credit limit.
  • Don't pay a fee for a card, or choose a card, because it offers any insurance policies or other products that are added to it. Despite grand claims, these are usually of very little value – if they're worth anything at all.
  • Don't be taken in by claims that you'll get access to "exclusive" foreign currency deals or other financial or travel products. You will almost certainly do far better by shopping around.
  • Ensure you're not beguiled into buying a spontaneous holiday deal or other linked offer without taking a few days to think about whether you really want it and to compare your other options.
  • With most credit cards, in most circumstances, you should not use them to make payments overseas (although you could get better protection from fraud if you're making large purchases). Read The best credit cards to use on your travels.
  • Read the small print for inactivity penalties; to be sure you're not caught, use your card for some standard purchases (and get that better protection on top), but always pay off your card bill soon afterwards.
  • Set up direct debits to pay off as much as you can and choose a date some time before the due date.
  • Read every word in your card statements as soon as they arrive. Compare them to your previous statements.
  • Read, and re-read, the small print before clicking the button to send your application, including the privacy policy. It's worth understanding it and you might spot some well-hidden check boxes!
  • Always pay off your bill in full if you've gone for a reward or cashback card instead of a cheap introductory deal. If you can't do that, you have the wrong credit card.
  • Consider cashback cards instead of reward cards, since they are usually far more rewarding and more versatile to boot. Don't ever buy something just because you receive cashback or a reward somewhere, and always shop around.
  • If you feel a credit-card company is treating you unfairly, you can complain to the free Financial Ombudsman Service, who might force the company to compensate you. You lose nothing by trying. Read How to complain to the FOS

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Why making credit card overpayments will actually cost you!

The law states that any goods you buy from a UK retailer should be of satisfactory quality, as described, fit for purpose and last a reasonable amount of time.

This applies even if you buy items in a sale or with a discount voucher. You may have to insist on these rights being respected, though.

Useful phrases to use when you want to show you mean business include, "according to the Sale of Goods Act 1979" and, if it's a service, "according to the Supply of Goods and Services Act 1982".

Some shops will allow you to exchange goods without a receipt, but they can refuse to should they wish.

If the goods are faulty, however, another proof of purchase such as a bank statement should work just as well.

If you attempt to return goods within four weeks of the purchase, your chances of getting a full refund are much higher as you can argue that you have not "accepted" them.

After this point, you can only really expect an exchange, repair or part-refund.

The updated Consumer Credit Act states that card companies are jointly and severally liable for credit card purchases of between £100 and £60,260 (whether or not you paid just a deposit or the whole amount on your card).

Anyone spending between these amounts on their credit card is therefore protected if the retailer or service provider goes bust, their online shopping never arrives or the items in question are faulty or not as described.

Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.

Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.

You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.

The FOS settles disputes between financial companies such as banks and consumers.

If a financial organisation rejects a complaint you make about its services, you can therefore escalate that complaint to the FOS - as long as you have given the company in question at least eight weeks to respond.

The FOS will then investigate the case, and could force the company to offer you compensation should it see fit.

Bailiffs are allowed to take some of your belongings to sell on to cover certain debts, including unpaid Council Tax and parking fines.

They can, for example, take so-called luxury items such as TVs or games consoles. However, they cannot take essentials such as fridges or clothes.

What's more, they can only generally enter your home to take your stuff if you leave a door or window open or invite them in.

You are therefore within your rights to refuse them access and to ask for related documents such as proof of their identity. If they try to force their way in, you can also call the police to stop them.

Private sector debt collectors do not have the same powers as bailiffs, whatever they tell you.

They cannot, for example, enter your home and take your possessions in lieu of payment.

In fact, they can only write, phone, or visit your home to talk to you about paying back the debt. As with bailiffs, you can also call the police if you feel physically threatened.

Thanks to the Distance Selling Regulations, you actually have more rights buying online or by phone than on the High Street.

You can, for example, send most goods back within a week, for a full refund (including outward delivery costs), even if there's no fault.

You will usually need to pay for the return delivery, though. The seller must then refund you within 30 days.

We enter into contracts all the time, whether it be to join a gym, switch energy supplier or take out a loan.

In most cases, once you've signed a contract, you are legally bound by it. In some situations, however, you have the right to cancel it within a certain timeframe.

Credit agreements, for example, can be cancelled within 14 days. And online retailers must tell you about your cancellation rights for any contract made up to stand up legally.

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