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Beware the credit card overpayment that isn't an overpayment

Jamie Stinson
MSE News Reporter
8 February 2013

Customers who try to overpay on their credit card could find their attempt to clear more of their balance doesn't work, potentially leaving them trapped in a debt spiral.

Many of the major credit card lenders automatically reduce customers' next direct debit by the value of any additional payment, which could negate the benefit of overpaying.

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For example, a customer who pays an extra £50 midway through a monthly billing cycle would have the value of their direct debit reduced by that value for that month. If the direct debit is due to be £100, it would instead fall to £50.

Barclaycard, Lloyds Banking Group, Nationwide and Santander are among card providers that reduce direct debits in this way. So their customers should be on the lookout, especially as paying just the minimum amount means it can take decades to clear a balance.

One Santander customer, Anthony (full identity withheld), contacted us to complain: "My minimum payment of £28.38 was due on 16 November. But I also posted a cheque for £5.

"But what does the bank do? It deducts the £5 from the total, not allowing me to make an overpayment. For me and thousands of others it means trying to make any overpayment is extremely difficult."

How to overpay on your credit card

Importantly, if the overpayment is made after the direct debit process has begun, which can be between one and five working days before depending on the lender, the direct debit should go through as normal.

If you're affected (see the table below to be sure) and want to pay extra, you will need to add the value of your direct debit to any overpayment.

If you can, always try to pay more than the minimum payment. If you pay just the minimum balance on a £3,000 MBNA debt at 20% interest, for example, it will take 14 years and four months to clear your balance and cost you £3,600 in interest, as our Danger! Minimum Repayment Calculator shows. This is typical of all cards.

Money Saving Expert credit card analyst Helen Saxon says: "Paying only the minimum on a card means committing to decades of debt. If you can pay more, even just a tenner here and there, it can make a real difference.

"But get it right and watch out for card firms that reduce your direct debits if you do this, or your good intentions will be for nothing."

Which card firms do what?

Not all card firms operate this policy of reducing a direct debit by the value of an overpayment, with some maintaining the standard direct debit regardless of any extra payments.

Below is a list of how the major credit card firms treat direct debits following an overpayment.

How card firms treat overpayments
Provider Will overpayment reduce direct debit?
American Express No
Barclaycard Yes
Bank of Scotland (i) Yes
Capital One No
Halifax (i) Yes
HSBC No
Lloyds TSB Yes
MBNA No
Nationwide Yes
NatWest No
Royal Bank of Scotland No
Santander Yes
(i) For cards opened in September 2011 or later. For earlier cards, overpayments will NOT reduce the direct debit amount.

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