Overdraft vs Credit Card

ZootHornRollo

Hi,

I have two credit cards.

One MBNA with a transfered ballance with £900 remaining on 0% till end of October. Then goes up to 15.9% apr. (£1800 limit)

I have just got an HSBC card with 0% on balnace transfers for 13 months (2.5% charge, £1500 limit)

i had intended on tranfering the balance from the MBNA card to the HSBC but i checked my bank statement yesterday.

I owe £2600 between two overdrafts. On checking the small print i noticed this has an 'effective' interest rate of 29%. Is that the same as APR?

So should i leave the balance on the MBNA card and lump my overdrafts onto the two cards and continue to pay them up?

sdooley

Those overdraft interest rates are horrific! Are you sure that isn't the unauthorised rate? Authorised rates are typically around 20%. EAR is like APR for overdrafts - they can't use APR as you aren't generally expected or able to keep an overdraft at a steady balance for the full year.

You should use the HSBC card to transfer £1,500 of overdraft. But if the overdraft is with HSBC they may not transfer that one. Assuming you can transfer that full amount, that leaves you with £1,100 overdraft. There are two ways to deal with this:

1. Pay it down - presumably your salary will clear most/all of that each month so you will only be paying interest for half of each month - once you have cleared the overdraft you can start on the MBNA card at 20%.

2. Shuffle - Pay off the MBNA card increasing your overdrafts back up to £2,000. Then contact them and the odds are good they will offer you a new 0% deal (though it may only be for a shorter period). If you transfer the full £1,800 you should then get at least one of those current accounts closed down and stop using the overdraft - otherwise you'll do what I've done in the past and find yourself at the end of the deal with credit cards still full and a full overdraft again!

Good luck paying it off - debt is horrid.

ZootHornRollo

sdooley wrote: »

Those overdraft interest rates are horrific! Are you sure that isn't the unauthorised rate? Authorised rates are typically around 20%. EAR is like APR for overdrafts - they can't use APR as you aren't generally expected or able to keep an overdraft at a steady balance for the full year.

You should use the HSBC card to transfer £1,500 of overdraft. But if the overdraft is with HSBC they may not transfer that one. Assuming you can transfer that full amount, that leaves you with £1,100 overdraft. There are two ways to deal with this:

1. Pay it down - presumably your salary will clear most/all of that each month so you will only be paying interest for half of each month - once you have cleared the overdraft you can start on the MBNA card at 20%.

2. Shuffle - Pay off the MBNA card increasing your overdrafts back up to £2,000. Then contact them and the odds are good they will offer you a new 0% deal (though it may only be for a shorter period). If you transfer the full £1,800 you should then get at least one of those current accounts closed down and stop using the overdraft - otherwise you'll do what I've done in the past and find yourself at the end of the deal with credit cards still full and a full overdraft again!

Good luck paying it off - debt is horrid.

as far as i know thats the authorised rate. Its RBS if thats any help.

I don't have the statement here but it said some about 2.20% (effective rate 29.95)

The 29% just rang some bells!

dhassen

I've got an account with RBS and every month I get an advice sheet with my statements that says what interest I'm paying that month for my overdraft (always in it at mo).
At the bottom it states what the unauthorised rate is (looks similar to the one your quoting), but it says 'the current unauthorised* rate' where the * says: 'or other agreed rate with you'. Now i've tried a few times to actually find out if this is what I'm paying or if this is just a warning incase I go over my agreed limit. I was told that the rate 'should be around 20%' but I couldn't get out of them if this is what I was actually being charged or not. It's my only (bad) issue with rbs....... I think it was the numpty at branch.

NickX

sdooley wrote: »

You should use the HSBC card to transfer £1,500 of overdraft.

I agree that the most expensive debt (i.e. the overdraft) should be paid off first. However, HSBC does not allow transfers of overdraft debt (i.e. Super Balance Transfers), they only allow transfers from other cards.

So, I would transfer the MBNA debt to the new HSBC card. Then contact MBNA and ask for an existing customer deal. This lender is known to be generous in its repeat offers. If you are lucky enough to get a decent repeat deal, then the good news is that MBNA will allow a transfer of overdraft debt, so ask them to transfer the maximum they can (usually 95% of the limit, therefore £1710) to settle down the overdraft as much as possible.

This will leave £890 of overdraft debt on that horrible 29% rate, so best advice is to work hard to pay this off as soon as you can.

Good Luck.

ZootHornRollo

thanks,

This may work out badly but i am just mulling it over in my head...

make some of my monthly purchases on the MBNA card... fuel, rent etc to get it near to £1500, then transfer that to the HSBC card. Then transfer £1800 of OD to the MBNA card after asking for a new 0% deal.

Pay off OD, pay off first 0% to run out, pay off last card.

I could try to get another 0% card from someone else if MBNA won't play ball but i only just got the HSBC one so would be two applications in close proximity on credit file.

how does that sound?

ZootHornRollo

anybody think this is a good or bad idea?

any idea how long it takes for a transaction to appear on my online statement?

JimmyTheWig

I think your idea is sound.
Not sure you'd be able to pay your rent on credit card, but other things should be fine.

I'd say don't apply for another card just yet. Very few cards allow a balance transfer to an overdraft, most of them in the MBNA family. My gut instinct is that you'll have more chance with the MBNA card you've got. Even if you can get, say, a 10% rate from them that wuold be better than you're paying on your overdraft.

The other option is to switch bank accounts. A&L, for example, are doing interest free overdrafts for a year if you switch to them.


But most importantly, draw yourself up a budget, stick to it and pay off that debt.