a boring post about money

[helenic]

I am currently in the process of paying off all my debts. This feels utterly lovely. My bank balance is, for the first time in years, substantially in the black, and will remain in the black even after I've paid off my credit cards and outstanding utility bill, which I should be able to clear with my next pay cheque.

I do need a credit card, because my debit card isn't Visa, and I buy things online a lot. The credit is also occasionally useful for resolving cash-flow issues, although I've demonstrated I can't be trusted with it, so if I keep it open I'll either cut up one of the cards or give them to someone else for safekeeping.

The thing is, I'm not particularly happy with either of my existing cards: Barclaycard which I got as a fresher, ignored throughout university, and started using again when I was a starving artist; Post Office which I transferred my Barclaycard balance onto last year to take advantage of their 0% on balance transfers, but since I then filled up the Barclaycard again this was a bit pointless, and the Post Office are now charging me interest anyway. I've been thinking of getting an Egg Smile card for a while because I generally think the Co-op are less evil than alternatives, internet banking is shiny, and I've paid more in late payment fees for my Post Office card (because they make it so difficult to set up a direct debit I've never actually got round to it) than I have in interest.

The question is, if I'm about to apply for an Egg Smile card, is my credit rating going to be higher before I pay off the other two cards, or after?

And should I be trying to get the maximum possible credit from Egg Smile, so I've got it as a backup in case of emergencies, and then give the card to someone else? (In which case it's not much use to pay for stuff online.) Or should I be applying for a minimal credit allowance, so I can use it online but there's a limit to how much debt I can get back into? Earning lots for the first time in my life is delicious, and giving almost all of it away as soon as it arrives in my bank account is bitter. I don't want to get into this situation again; ideally I would like to start saving. My budgeting is better than it used to be, but I'm not entirely sure, yet, how much I can trust myself with credit. What would you do?

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edit: Ah, I meant Smile, not Egg. Cheers dennyd.

Also, have realised that now I've paid my overdraft off I can FINALLY move my main bank account away from RBS with their unethical bank charges and plummeting reputation. Is Smile the best option for a current account as well?

Comments

[smhwpf.livejournal.com]

Having had a debt and then paid it off does good things to your credit rating. So probably best to apply after paying off.

Personally I'd go for minimum credit so that you can buy online. In fact, personally I recently did exactly that, being in the same situation of not having a Visa/mastercard as my debit card. But then this is my severe credit-card/debt aversion, due to half my family having screwed themselves up so badly financially. It's the first time I've had a credit card. Not abused so far. :-)

But in your situation, what with being self-employed for a substantial portion of your income, it might be advisable to have an easy source of credit to deal with uneven cash flow. But a decent overdraft limit is probably preferable if you can get it IMO.

[libellum.livejournal.com]

Mm, I've also just paid off my £2000 overdraft, which has been full since my first year as an undergraduate. So that's presumably not going anywhere, and however much of an emergency it is I'm not sure I want to get into more than £2000 of debt again. Perhaps keeping the overdraft as back-up credit and the cards for online purchasing is the way forward.

(Of course, now I've paid my overdraft off, I'm at liberty to move my bank account to somewhere a bit more ethical. Is Smile still the best option for that, I wonder?)

[libellum.livejournal.com]

Although if I move my bank account, I can't guarantee getting a new low-interest overdraft. In which case it might be an idea to keep one of the cards with a generous credit limit. Hrm. This is getting complicated.

[dennyd.livejournal.com]

Smile only give you a £500 overdraft limit afaik.

[dennyd.livejournal.com]

...although I chose to regard this as a Good Thing™, having lived at the bottom of whatever overdraft facility was made available to me ever since I was a teenager :)

[libellum.livejournal.com]

Yeah, I'm the same. The thing is that atm £1500 of my overdraft is free, because I'm still using my graduate account and haven't upgraded it to a normal current account yet, although this means they pester me about getting a review every time I pay a cheque in. So, yeah, I clearly need to do something about that, and I'm disinclined to line RBS's purse any more if I can help it. I assume it's not actually possible to get interest-free or low-interest overdrafts as an adult without paying lots of money or having years of loyalty? I don't know how interest-on-overdrafts compares to interest-on-credit-cards though; I assume the latter is substantially more.

[dennyd.livejournal.com]

Afaik nobody offers interest-free overdrafts to anybody except students.

[shaper-uk.livejournal.com]

I've managed to keep my interest free overdraft by not moving my account from the graduate account. YHes they do hassel me to change it, but I tell them that until they can offer me another interest free overdraft I aint moving
:)

[libellum.livejournal.com]

Yeah, this is where I'm at right now - they charge me for like the bottom £500 of it, and for the last couple of years I've been down to -£2000 at the end of every month. Really want to upgrade to a proper grownup account where I don't feel like I'm taking the piss though. Also not impressed with RBS, and finally getting into the black gives me the freedom to change.

[biascut.livejournal.com]

The interest on overdrafts is v. low, partly because it's calculated much more regularly than credit card interest, so you pay for (eg) the six days where you were £100 overdrawn rather than as if you were £100 overdrawn for a month. Last month I went into my overdraft on the 20th of the month, and was £300 overdrawn by the time I got paid, and that cost me 80p.

[libellum.livejournal.com]

Hrm. So do any of the ethical banks offer large overdrafts, or does that question sort of answer itself?

[biascut.livejournal.com]

We're only ethical for our joint account, where I think we've got £150. I've got £1500 at Bank of Scotland, but that's the account I've had since I was an undergrad.

Anyway, that's about where my advice runs out - good luck!

[dennyd.livejournal.com]

Egg is not Co-op. Smile is Co-op, Egg is Prudential. I have both, their websites both work nicely. Egg dealt with my fairly messy debt problems very well back in the day so I retain some loyalty to them, but Co-op/Smile have a shiny ethical policy so that's where I'd tend to encourage new business to go if you're not looking to pick up any 0% transfer deals or anything like that.

[libellum.livejournal.com]

Aha, thanks for clearing that up :) Smile is who I was thinking, I just got confused I think because you mentioned Egg the other day.

Any advice on the emergency credit/minimal risk dilemma?

[dennyd.livejournal.com]

You could go for getting the limit bumped up on one of the existing cards and then cold store it, and get a new card with a decent website and a lower limit for daily use.

[libellum.livejournal.com]

Mm, this might be the way forward. If I get a Smile current account, I wonder if the debit card would by Visa? Then I wouldn't even need a new credit card. Shall investigate.

[dennyd.livejournal.com]

Mine is. If you're going to use your Visa Debit for online purchases, you may not be covered by all the credit card protection stuff - you should probably check the legal mumbo-jumbo around that area.

That said, if it does look like a good option then you could get a Smile current account, use your Smile debit card for day-to-day stuff, and get a Smile credit card to cold store - thereby enabling you to give the finger to RBS, Barclaycard, and the Post Office. :)

[libellum.livejournal.com]

Really? Hadn't realised the card protection stuff was different for debit/credit. Interesting.

I like your second idea; I'm going to want *some* sort of backup, and if I don't have a large overdraft, I will need at least one working credit card, even if it lives in the freezer (or at your flat).

[biascut.livejournal.com]

I might be sufficiently temperamentally different to you that what works for me doesn't work for you, but here's my plan: I spent the first six months or so of Actually Having A Job getting rid of my overdraft and replacing things that I'd done without or which had just got completely knackered whilst I was a student, and then set up a standing order putting a couple of hundred quid coming out of my account on standing order at the beginning of the month into an ISA, right after I've got paid. If I try and save in my current account after I've paid for other stuff, it's just not going to happen! And I don't really use my credit card for credit, just for security: ie. I pay it off each month and have only paid interest about three times in twelve years.

(This means, I think, that my credit limit is probably fairly low for someone my age who's had the same card for twelve years: about £3K. They've never offered to increase it, except for the two times at the end of my undergrad degree and PhD respectively when I actually carried the balance over to the next month and paid interest, when they immediately sent me excited letters telling me that they'd doubled the limit.. Bastards!)

What kind of high-spending do you do on your credit card? If you use it fairly wisely online but get carried away when you go out with it in your pocket, can you keep it in a drawer at home? Of course, if you've got a tendency to overspend on shiny online things, that isn't going to work!

[libellum.livejournal.com]

For my first few years of having a credit card I managed to do the same thing as you - use it sparingly and pay it off each month. Then I started using it for cash advances - borrowing money off myself to pay for things like air fares, and then just never getting round to paying myself back. Once the balance was out of hand, I got into the bad habit of putting occasional extravagances on it (presents, etc) which I couldn't really afford, and then letting it accumulate rather than paying it back.

So I'm not in the habit of regularly buying expensive things online or out shopping, and since I started approaching my credit limit on the second one I haven't used either for anything I couldn't then pay off the same month. So I've already changed my habits; I wouldn't be trying to go cold turkey. Otoh, I've changed my habits out of necessity - if the credit limit was temptingly sitting there, maybe I'd use it next time I 'needed' to book something I didn't have the money for that week. Or maybe I've grown up since then. I feel like it should be okay, I'm just ... wary.

[biascut.livejournal.com]

When you did let the credit creep up, did you look at how much interest you were paying? Because that's the thing that always stops me carrying credit on it: a charge of £30 or £60 or something, and I look at that and think OUCH, how much more fun I could have had with that money if I hadn't spent it on credit card interest! If you suddenly find £60 disappearing from your disposable income, the shiny things you can't afford right now suddenly look a lot less shiny!

[libellum.livejournal.com]

Haha, no. I should probably work the interest thing out; I suspect you're right that it would be very useful as a barometer for how urgent a purchase is!

[olithered.livejournal.com]

I've had good experience with Smile/Co-op but they have been inexplicably stingy with our credit card limit.

[libellum.livejournal.com]

Well, I might be looking at a current account with them; a credit card would mostly be for emergency backup credit, since I'll be losing my nice big student overdraft when I move bank. The credit card doesn't need to be with Smile; I'll apply and see if I think what they've given me is enough, I guess.

[roz-mcclure.livejournal.com]

I am now (as in, started this month) doing a thing where I sock away a certain amount to debt-paying-off and a certain amount to savings every month, with the eventual goal that theoretically in, maybe, a year, I will be debt-free and have enough savings that those can act as my emergency buffer.

When that happens, I plan to cut my credit limit to the minimum, for pretty much the same reasons you give. :/

[libellum.livejournal.com]

Mmm, your first paragraph rings very true. There are always enough "necessary" things I need to pay for each month that I run out of money before I can save; and yet, were I to save at the start of each month, I could probably cope fine. Been so long since I had a regular income that I hadn't even considered this.

I think I'm going to try and continue to pay credit cards off in massive lump sums, because I am being paid in massive lump sums and this means I can get it all out of the way super-quickly. Once I've cleared the big urgent debt and am onto generic tax/future purchases saving, I think saving long-term at the same time and doing everything a bit slower is probably sensible.

[roz-mcclure.livejournal.com]

Yes, I always, always, always spend down to as much money as I have, so, yes, it's definitely been very good for me to take it out of the "spending money" pool and put it into the "saved money" one, because it's not in my head as "capital! wheeeeeeee! I'm going to Malaga!" any more.

I will note that I tried to lump-sum pay my credit card off one month, and that accidentally sent me into the overdraft that charged me £155 in fees, so I'd just recommend being careful about that!

*wanders in from friendsfriends*

[birdsflying]

I'm doing something similar to you and one thing I'm going to do with my credit card (the paying off is niiiiigh!) is either put it in a ziplock bag and freeze it (easily defrostably with a hairdryer if I need it!) or getting one of those cash boxes and putting the key away safely. That way, I still have the damn thing but it's not easily reached.

And yes, I am def. thinking about shifting to Smile/The Co-Op once I've got rid of my student OD for the ethical reasons!

Re: *wanders in from friendsfriends*

[the-lady-lily.livejournal.com]

I was just about to suggest the freezing-in-a-bag thing (possibly wrapped in something if you fear you'll try to see the numbers through the ice!). (The idea of freezing it in Ribena has just occured also, which would be cool but sticky.) It also means that if you do want the card, you have to go through the process of unfreezing it, which means thinking about the purchase in a way that just taking the card out of the wallet simply doesn't do.

Re: *wanders in from friendsfriends*

[libellum.livejournal.com]

Is the freezing-your-card thing an American thing, or is it just chance I've never heard of it before? It's a neat idea.

Re: *wanders in from friendsfriends*

[the-lady-lily.livejournal.com]

I heard about it years ago from a New Woman article on how to manage your money like a grown-up (or something along those lines) - I think it's a really old tip-bit that's just got lost as we've started to think (as a society) of credit debts as a normal part of life instead of something to avoid at all costs.

Re: *wanders in from friendsfriends*

[libellum.livejournal.com]

Haha! And here I was thinking the phrase "cold store" was metaphorical :)

Freezer or my boyfriend's flat, I think. Both are Good Ideas, especially if I need a backup high-limit credit card because I move my current account to one with a small overdraft. Thanks for the suggestion :)

Re: *wanders in from friendsfriends*

[biascut.livejournal.com]

I totally assumed that that was what you meant by "cold store"!

[ebb.livejournal.com]

A couple of things (and apologies if you've had this info, I'm on lunch but about not to be so am being quick!);

1) Your credit rating changes month to month and one of the things they take into account is your current credit balance. So if you can pay off cards etc before looking for a new account, do, but if you can't pay off in full, the more you can pay, the better anyway.

Take into account that they take balances on 1st of the month - so I'd advise paying off before then, and applying after then... if that makes sense?

2) A few people have suggested Co-Operative Bank to me too, but one of the others mentioned was First Direct. The post here (http://ebb.livejournal.com/317402.html) if you're interested (as I'm looking for a much better bank than Lloyds at the moment... so I'd be very interested to see which one you plump for too actually!)

[libellum.livejournal.com]

1. Thankyou! I wasn't sure if being in debt or having just paid it off was better. I'll do that first then.

2. Thanks for the recommendation; I'll definitely take a look at that link. I'm not wedded to the idea of Smile by any means, but I do need good online banking and branches, and would like ethical investment (as much as possible), not taking the piss with bank charges, etc. I wish I had time to research this as thoroughly as I'd like.

[original-hell.livejournal.com]

Smile's current (well, student) account has been pissing me off lately. One of those wonderful charges for not paying somthing that would take me over my overdraft limit hit me - I forget if it was £29 or £39 - and when I said, erm, isn't there a rule now about not charging for something that doesn't cost you that much? they basically told me to shut up and fuck off. So I told them I would be leaving smile, but since then I haven't had enough in my account to transfer. *sigh*

[libellum.livejournal.com]

Oh pants, I was hoping they were better than that. Not sure what the other options are though, in terms of ethical investment etc?

[original-hell.livejournal.com]

I agree, they're good if you want ethical. In future I would avoid internet-only banking though, since it would be good to be able to face-talk to someone about this, and especially as internets are an option on most accounts.
x

[matt13.livejournal.com]

The rule isn't yet in place. AIUI, the court found that high bank charges were unfair, but hasn't yet decided how much is fair to charge.

http://www.moneysavingexpert.com/reclaim/oft-bank-charges

The Coop charge is £20, which is still less than the other banks. (It's £30 if it's a cheque or direct debit that takes you overdrawn).

[sylvanstargazer.livejournal.com]

I don't know much about British banking, but here I've got a credit union account because they pay better interest than any for-profit bank, and plus they know me when I walk in the door. Oh, and they aren't about to crash and take down the world's economy with them.

For credit cards, I have two: one set up to auto-pay the bill from my checking account and one that isn't, with a higher credit limit. Since I get 1.5% back on all purchases and can see where my money is going in a handy pie chart on Mint.com if I use my credit card I funnel almost all my buying through the pays-off-automatically card with a credit limit I could theoretically afford to spend each month. The other card is for if I need to purchase things like furniture, which didn't fit onto the small card. If I ever need to do cash-flow management, I use the higher limit card.

I'd also definitely second not using your debit card for online purchasing. If you want to use your bank account directly I'd suggest paypal, but you want some service that will at least theoretically cover the cost of fraud, and debit cards usually won't. At best, if someone gets ahold of your debit card information they can clean out your bank account, instead of just put some charges on a card which you can then dispute and not have to pay.

[libellum.livejournal.com]

I wonder if credit unions are what we call building societies? If so, they aren't a realistic option for banking these days, which is a shame.

Your last para is very useful; thankyou. I hadn't relaised the security settings were different for debit/credit. There are one or two places I use regularly that require Visa/Mastercard/American Express and don't take PayPal (mostly my Etsy seller bill) but you're right that for most places PayPal is a better option.

[sylvanstargazer.livejournal.com]

Possibly; that sounds familiar. They're non-profit banks that only work with local people who are somehow associated with one another. In this case, my bank is associated with my office park. They've done well in the states with the transition to internet-based banking, since having lots of branches across the country matters much less now.

[matt13.livejournal.com]

Credit unions (http://www.moneysavingexpert.com/protect/credit-unions) are different from building societies. They seem to be useful if you happen to live somewhere where there's a big one (Glasgow, Edinburgh) or work for a large organisation (the Police, a railway company). There's one I could (possibly) join, since I live in it's area, but they're only open for two hours a week and have 30 members.

British banks have to refund debit card fraud like credit card fraud, but it's still more effort to clear up the mess than with a credit card, since there might be overdraft charges (and if the electricity bill isn't paid the electric company adds their own late payment charge etc).

[purplegril.livejournal.com]

I've heard that lots of Credit Unions are being set up since the economic downturn, so it may be worth looking into again.

[purplegril.livejournal.com]

In what way is a buiding society unrealistic? I've always banked with a building society (Nationwide).

[matt13.livejournal.com]

I opened a Coop bank account when I got my job, because I like their ethical policies (not investing in arms manufacture etc). I haven't used my NatWest student/graduate account since December, but the account is currently overdrawn to the limit of the interest-free overdraft, with the cash sitting in an ISA.

The Coop debit card is a Visa Debit one. I chose Coop rather than Smile as I thought the branches would be useful, but it seems you can use Coop branches with a Smile account anyway. (There are Coop branches in Holborn and the City, but you can pay in cash at any post office.)

[libellum.livejournal.com]

Your last para is handy; I need to pay in a lot of cheques as OG insist on paying me by cheque (growl) so branches are important. Internet banking is also very important as that's how I organise everything else in my life.

Maybe I should keep the RBS overdrawn to the limit of the interest-free overdraft and do the ISA thing ... mostly I just want to stick the finger up at them though, and I'm worried that they'd reduce my limit or change my account type without consulting me, and I'd suddenly be stuck with loads of fees. I think I'm better off just starting fresh and not trying to be too sneaky, tbh.

[sevenhelz.livejournal.com]

With smile you can definitely pay in cheques at Post Offices. That's pretty much all I do with my account.
http://www.smile.co.uk/servlet/ContentServer?c=Page&pagename=Smile%2FPage%2FsmView&cid=971088203503
may be useful?
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