Paying off overdraft with a credit card - advice needed!

clapperz

Hey, i've got a bit of debt i would like to pay off.

I have a £1250 overdraft, that i've been living out of for the last 2 years. I'd like to clear it, so i've come for advice on this site.

I've read Martin's advice about using a credit card to do so. I've never had a credit card before, and i'm a little nervous about getting one.

Could someone please explain what i should do in this situation. Is a credit card my best option ?

Thankyou for your time!

Rob

Moggles_2

If this would be your first credit card, you have a limited credit history, so from the lender's perspective you're something of an unknown quantity. You probably need to be more concerned about actually getting a credit card, rather than trying to select the best card for transferring an overdraft.

Lenders launch these 0% balance transfer promotions, which are sometimes heavily advertised, to draw in new customers. Often they are flooded with applications and can afford to cherry-pick applicants.

Presumably you have a bank account and you're registered on the electoral roll. Your own bank may be the best place to start. It takes time to build a good credit history, but once you've run this starter card from your bank for a bit, you'll find it easier to get the credit cards and credit limits you want.

For tips to improve your chances of credit card acceptance, have a look at the *Credit Rating: how it works and how to improve it guide* especially Martin's *Manage and Improve your credit score* article

http://www.moneysavingexpert.com/banking/credit-rating-credit-score#improve

NickX

clapperz wrote: »

Could someone please explain what i should do in this situation. Is a credit card my best option ?

You will need a card with SBT (Super Balance Transfer) capability. This means they will pay funds directly to your Bank Account thereby paying off your overdraft.

Only a few rather special cards have this facility. These include Egg, Post Office Card and most cards from the MBNA stable (including the Virgin range, Sony, Alliance & Leicester)

In addition MINT periodically issue Credit Card Cheques that can be paid into your Bank Account at Balance Transfer rates. However, unless the cheques are already in your possession, this is the least satisfactory option because the cheques cannot always be requested and you don't know how long you will wait until they drop through your letterbox.

clapperz

Cheers guys. Thanks for your advice. Ill look into seeing if i'm actually eligabl for one.

YorkshireBoy

clapperz wrote: »

Hey, i've got a bit of debt i would like to pay off.

A word of warning...you won't "pay off" the overdraft with a card, merely transfer it somewhere else. The debt will still need to be repaid.

I have a £1250 overdraft, that i've been living out of for the last 2 years.

Assuming you return the account to credit each month with your salary, then your average overdraft balance might only be £500.

At 19.9% EAR (which is an expensive overdraft facility by the way) this means you will be incurring around £7.50 a month in debit interest.

The minimum payment on an MBNA run SBT card is £25 per month, and on an Egg Card it's 2% - so also £25 on your £1,250 transfer.

Where will you find this £25 per month from?...from delving back into the overdraft?...and if you had it before why weren't you using it to reduce the overdraft?

The danger in what you're proposing is you only pay £25 per month, and then after a year you're still left with £950 owing to the card provider who, if recent reports on MBNA are anything to go by, will have increased your rate to 34.9% APR...nearly twice what you're paying in overdraft EAR now.

Yes, you can shuffle for better rates (and incur 3% fees along the way), but the best way to eliminate debt is still to earn more and/or spend less.

clapperz

thanks for that yorkshire boy.

So my best option, get them to reduce the overdraft gradually each month? I tend to get overdrawn each month anyway. I can prevent this, and thats why i'm taking action as of this month.

I'm currently with Natwest and pay £14.63 each month as interest. When they take this from my account is usually when i go overdrawn. This is a further £40.90 charge.

Is it possible i can switch to a 0% overdraft account and take my overdraft. Or is that not how it works?

Thanks for your help

YorkshireBoy

clapperz wrote: »

So my best option, get them to reduce the overdraft gradually each month?

No. The best option is to leave the overdraft facility where it is, and use it for what it's there for...an emergency. In order for this to work though, you need discipline. Have you got it...going forwards? Are you having your 'lightbulb moment' now?

I tend to get overdrawn each month anyway. I can prevent this, and thats why i'm taking action as of this month.

When you say "get overdrawn", do you mean in an unauthorised sense, ie that's why you're incurring charges as well as interest?

I'm currently with Natwest and pay £14.63 each month as interest.

This was the point I raised earlier. The overdraft is only costing you £14.63 a month now. If you transfer the debt to a credit card you'll have to pay £25, which obviously means you're £10.37 short. All of which means your overdraft will continue to grow.

Is it possible i can switch to a 0% overdraft account and take my overdraft.

Many providers (and specifically A&L who offer such a 0% overdraft) will want to see evidence of good management of your existing facility, and it sounds like you can't demonstrate that (yet).

Re the interest charged each month, you should investigate moving your regular payments back to the end of the month (ideally just before payday if monthly salaried) in order to minimise the interest.

Until you can get your overdraft balance reducing each month there's no point in switching it to a credit card IMHO, for the reasons I mentioned earlier.

tictax

Loaner is right on this one.

Why do you go overdrawn each month? Can you cut back on things to help save eg not buying that Starbucks latte, buying own brand food from the supermarket.

As the other posters have said you may find it difficult to get credit as the overdraft is the only credit that you currently have. If you manage to pay off £200 then get the bank to reduce your overdraft by £100 this way you won't be tempted to spend but still have a little bit of an overdraft.

Kavanne

BTW OP The £40.95 is a combined maintenance fee (£28) + Advantage Gold account fee (£12.95). Do you really need the ad gold account? Is it saving you over £12.95 a month? If not, might be worth reviewing that facility too.

Natwest will let you transfer the balance of your OD onto on of their CCs but it won't be 0% it will be their standard purchase rate, however, there's no fee for doing it. So if you can't get a CC elsewhere you can at least try to get it onto a lower rate with them (but if you have a lot of charges you might not be able to do that either)