Loan to credit card help. Stay or go!

Money_Muppet

Hi,

Starting to get into this money saving lark after years of being an absolute clown as far as it come to looking after my cash.

Late last year i took out a £12k loan with egg to consolidate all my cards. It's at 9.51% and I'm paying £400 a month (up from £300 originally) it is due to finish in December 2010.

I currently have just less than £10k outstanding and am wondering if it would be cheaper to switch it onto a 0% card (assuming i get a high enough limit)

I'm concerned that the transfer fee (2.98%) which will be about £300 has interest charged at the full rate (around 15%) and don't know if I will actually save money by moving.

To further complicate matters, i was going to pay the minimum amount off the card each month, and save the difference in an ISA until my 0% period runs out.

so.... do I twist or stick?

Any help would be greatly appreciated!

Moggles_2

If you will have savings to pay off your credit card balance before the 0% period expires, that's great. The risk in paying off a loan this way is that you can't be sure of another 0% credit card offer with a sufficient credit limit when your current deal ends and the interest rate leaps to anything from 16.9% to 34.9% APR variable. For all we know, 0% BT deals may not be around in 12-15 months time and BT fees could have jumped to 5% or even 6%:eek:

Bear in mind that the reason the card providers can afford to lend you money at 0% for X months is because, more often than not, customers do not clear the debt and end up paying crippling interest when the promotion period ends. This is the main way lenders claw back the cost of these promotions. If this were not the case, these 0% offers would have dried up long ago. If X months isn't long enough to clear the loan, it may be safer to stick with the fixed 9.51% rate that you are currently paying

Also, you'll need to factor in the balance transfer fees and check the loan Ts & Cs. Some providers charge an early repayment penalty if the loan is settled in full before the scheduled date.

NickX

Well you will definitely save money in the short term, even with interest on the Balance Transfer fee you will pay far less in interest than you would on a 9.51% apr fixed rate loan.

However, I can see a couple of problems with your plan :

(a) Getting a £10k Credit Limit could be difficult. This is on the high side and you would need an excellent credit rating to get a limit this high with a 0% deal.

(b) The 0% deal only lasts for a fixed length of time (usually 12-14 months). At this point the debt will revert to the card's standard variable rate which could be anything up to 34.9% and will quickly wipe out any savings that you have made with the 0% deal. Therefore you need to be able to transfer the debt again at this point (or even better pay it off in full). There is no guarantee that you will get a further 0% deal at this point.

Basically if you can get the £10k Credit Limit and you are confident of paying the debt off within 12 months then it is a good move, if not then you are taking a gamble, but hopefully an informed one. Good Luck.

Moggles_2

Originally Posted by flemingcool
I'm concerned that the transfer fee (2.98%), which will be about £300, has interest charged at the full rate (around 15%)

Which credit card do you have in mind? If it's Virgin, the balance transfer fee is always collected with the first monthly repayment, so your first minimum payment would be 3% of the balance and no interest accrues. From there on your minimum monthly payment would be £25.

Money_Muppet

Moggles wrote: »

Which credit card do you have in mind? If it's Virgin, the balance transfer fee is always collected with the first monthly repayment, so your first minimum payment would be 3% of the balance and no interest accrues. From there on your minimum monthly payment would be £25.

Ah! That's good news. It is the Virgin card I'm looking at. I had a card with them a few years ago and they gave me an £8k limit. That's why I think I may be able to get enough. If interest doesn't accrue that must leave me with quite a saving by doing it this way...

I'm also confident that I would be able to get another card to pay off the remaining £4k(ish) after the 0% term has finished.

Think I will give Virgin a ring tomorrow and see if I can coax a 10k limit from them.

Thank you everyone.

YorkshireBoy

flemingcool wrote: »

I had a card with them a few years ago and they gave me an £8k limit.

We didn't have a 'credit crunch' a few years ago though.

Did you also have £10K of debt elsewhere when they gave you £8K last time?

NickX

Virgin are known for good limits, I have had over £10k from their cards in the past, and the fact that you have previously received an £8k limit does bode well.

They will also allow you to transfer the funds direct to your Bank Account to pay the loan off.

So, I think the key area you need to consider is how to handle the debt once the promotion has expired. You don't want to be paying the standard variable rate. The 34.9% figure is getting commonplace with Virgin.

You should be able to save some money by saving the repayment monies in an ISA or a high interest savings account. After the first payment (which as Moggles points out includes the Balance Transfer fee) you should only have to pay £25 per month.

YorkshireBoy

We obviously don't know your salary, or other circumstances, but unless you're on £30-40K per annum I'd be getting my credit file in tip-top order before chasing £10K limits on single cards...especially with a £10K loan balance.

For example, do you have a lot of available credit?...unused, empty cards...overdraft facilities...etc? Are you on the Electoral Roll? Do you have a traceable (via your credit report) address history over the last 3-6 years? Are you financially associated with anyone with a poor credit history?

NickX

It could be an idea to apply for an straight MBNA card at the same time as the Virgin card.

My thinking is that if you don't get the Credit Limit that you need on the Virgin card alone, then you may get it on the two cards combined. Also both will allow transfers of funds to your Bank Account to settle the loan.

The reason I say apply at the same time, is that they are both MBNA run cards, so if you already had one then this may limit the Credit Limit that you get on the second, whereas by getting both applications processed at once they may well not notice that you are going to end up with 2 cards.

Money_Muppet

I'm on about £32k a year, only have one other card. It's with egg, 2k limit (reduced at my request a while ago) it's used to pay for petrol and spending on holidays etc, it's cleared every month.

On electoral roll, home owner, zero missed or late payments for as long as I can remember.

Hopefully they'll give it me, then I can save some money and be debt free a bit quicker.

NickX

flemingcool wrote: »

It's with egg, 2k limit (reduced at my request a while ago)

Is it an Egg Money card by any chance ?