When a card costs you vs pays you
Lesson 10 of 12 in our free Credit Cards: Tool, Not Trap guide: a 5-minute money game with the key points below.
This lesson is in the full version.
Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Credit Cards: Tool, Not Trap is free for everyone.
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Questions you'll answer
Illustration: a card gives £36 a year in cashback. Carrying £600 at 25% APR costs about £11.26 a month. How many months of carrying it wipes out the whole year's cashback?
Which person's card is paying them?
Quick facts
- Cashback on bills you'd pay anyway, cleared in full → Pays you. Money back for spending that was happening regardless.
- A late-payment fee from paying two days late → Costs you. Fee plus a possible mark on your file.
- Section 75 cover on a planned sofa, balance cleared → Pays you. Free protection when you pay in full.
- Interest from carrying last month's balance → Costs you. Interest is the card getting paid.
- A cash withdrawal fee for a night out → Costs you. Fee plus interest from day one.
- Weeks between buying and paying, then cleared in full → Pays you. Interest-free days used properly.
- Myth: “Dex: 'If the rewards are big enough, carrying a balance pays for itself.'” — It almost never does: typical card interest rates are many times bigger than reward rates.
- Fact: “A card with a yearly fee can cost you even if you clear it in full.” — If the fee is bigger than the rewards and perks you actually use.
- Fact: “A card cleared in full every month costs you no purchase interest.” — That's the whole deal: borrow for free for a few weeks, pay it all back.