Quick calculation needed.

Flux_capacitor_2

Hello,

A quick piece of advice is needed. My 0% rate on my lloyds card finished next month. I can move some of the balance to another 0% card and the £1630 that remains at 16.704% PA I can either snowball to clear within 6 months or move to another 0% deal which will cost 3%. Which method will save the most money? If there is only a few quid in it I would rather snowball at 16.704% because there is a certain amount of hassle involved with getting the second 0% deal.

I hope that is clear enough.

thanks

edindie

Not sure what you mean by snowball, but are you asking what’s less: 16.704% for 6 months or 3%....?

Flux_capacitor_2

basically yes!

edindie

Well, ½ of 16.7 is 8.35, so the letting it snowball approach is going to cost a lot more.

Assuming no payments/charges:

1630 * [0.16704*(6/12)] = £136.11 in interest

1630* 0.03 = £48.90 in interest


Therefore the BT is nearly £90 cheaper.

Flux_capacitor_2

but surely that is not allowing for the balance coming down each month?

first month 1630
second month 1360 + plus interest
third month 1090 + interest
etc

edindie

Sorry, didn’t realise you wanted to pay it off in 6 months.

Paying £300 a month will result in you accruing 77.15 in interest I think. Which is still more than the 3% balance transfer. But only by 28.25.

NickX

The Balance Transfer is still the better option because 16.704% over 6 months is roughly 8.352%, which is still more than the 3% BT fee.

To calculate the figures accurately is difficult because the stream of payments will have to be taken into account. Any actuaries about ?

edindie

Is it not just X+(X*(0.16704/12)) to calculate the interest every month?

NickX

edindie wrote: »

Is it not just X+(X*(0.16704/12)) to calculate the interest every month?

But the Balance will increase by that amount each month, and then there will be whatever payment is made, so the interest the following month will be that little bit less.

You can either just work through it month by month, but I think actuaries have formulae to work these things out.

Milarky

I calculate that paying £285 per month - first payment after 30 days - the interest is about £80. But paying £281 - first payment immediately and monthly thereafter - instead the interest is only £56. In both cases the £1630 is cleared at 6 months duration.

So it appears as if 'snowballing' (if it can be maintained) significantly reduces the benefit of a 0% for 6 months with 3% fee. (As little as £7..)

However, the 0% will always be superior and is at least fixed for the 6 months - the 16.704% isn't fixed...

In addition, if on the 0% offer and only making minimum payments, £1521 could be gradually put into a decent (5% net) access account - earning interest of about £16 and then being £31 (+£16) more than the resulting debt at 6 months.

In sum 'snowballing' would cost as little as £7 more or as much as £47 more than a 0% deal - depending on how clever you are with your money....

Flux_capacitor_2

Milarky wrote: »

I calculate that paying £285 per month - first payment after 30 days - the interest is about £80. But paying £281 - first payment immediately and monthly thereafter - instead the interest is only £56. In both cases the £1630 is cleared at 6 months duration.

So it appears as if 'snowballing' (if it can be maintained) significantly reduces the benefit of a 0% for 6 months with 3% fee. (As little as £7..)

However, the 0% will always be superior and is at least fixed for the 6 months - the 16.704% isn't fixed...

In addition, if on the 0% offer and only making minimum payments, £1521 could be gradually put into a decent (5% net) access account - earning interest of about £16 and then being £31 (+£16) more than the resulting debt at 6 months.

In sum 'snowballing' would cost as little as £7 more or as much as £47 more than a 0% deal - depending on how clever you are with your money....

Great answer - thanks