Help needed clearing credit cards: bamboozled with %'s

NicciJB

I have two high interest credit cards and one store card, with a total debt of £800. I was declared bankrupt in 2004 and discharged in 2005.

I was recently offered a "pre-approved" low interest credit card at my bank and so went ahead with the application thinking I could balance transfer my existing credit cards (0%).

I was told the card was approved and it would arrive in the post within 5-7 days. However, I subsequently received a decline via letter for the supposed "pre-approved" credit card. I assume due to the bankruptcy.

I now want to clear the cards and am bamboozled by the options available. I want to do this as cost effectively as possible and now the bank credit card is no longer an option, I am left with the following:

1) Upgrading my account to “Additions” paying £14 a month account fee for a £1400 overdraft. The first £300 of overdraft is interest fee. The rest is charged at 12.9%

2) Not upgrading my account to “Additions” – hence no account fee, and having a standard £1375 overdraft charged at 19.9%

3) Taking out a loan of £1375 or £1400 over three years at a rate of 22.9%

Help!! What would be the best for me in terms of paying interest? My instinct was to go for a loan but the bank clerk was trying to convince me that an overdraft would be more cost effective.

Horace

Hi and welcome

Don't take out a loan to clear debts as you will only get into a worse pickle. How about posting an SOA (statement of affairs) so that we can see where you can save money to chuck at your credit card.

https://www.makesenseofcards.com/soacalc.html follow the instructions on there so that you can copy and paste to MSE.

dancingfairy

Whose best interests do bank clerks have in mind? yours ? or to make money for their share holders?
Ask their advice by all means but don't assume they are trying to help you as they aren't always.

Generally look out for the lowest interest rate possible - o.k you have to factor in fees etc but a low interest rate is a good place to start.
Loans are generally a bad,bad,bad idea
1) they lead to more temptation - you clear the credit card/overdraft etc and get a nice low monthly payment to repay the loan and start spending
2) often they can be secured against your house - meaning you could lose your house whereas with overdrafts and credit cards this is extremely unlikely
3) this loan has a much higher rate of interest
4) in order to get a nice low monthly payment you end up paying a LOT more back over the years - a great little earner for the banks - rubbish for you.
5) you can't overpay loans in quite the same way as overdrafts and credit cards - so you are more stuck on a loan.

I hope I have convinced you that loans (especially consolidation loans) are nasty things- much better options are available.


df

NicciJB

Thank you both for responding.

I thought a lower interest loan or lower interest overdraft would make me better off in the long run as the Vanquis credit is 40+% APR and the Capital One credit card is 30+% APR - or am I viewing things too simplistically? I don't get the whole APR thing - very confusing... Meanwhile, I'll do the SOA thing and consider not getting a loan. Any further comments on my view welcome!

dancingfairy

You're right the loan would be a much better bet than than the credit cards - didn't realsie they were at such a hideous rate - however , like I said before a loan is not as flexible and the overdraft options have even lower rates so would be an even better option for you.
The option of paying a fee monthly will cost you 168 a year.
df

NicciJB

I checked the rates on my credit cards:

Vanquis: 47.89
Capital One: 30.34
New Look: 28.9

Does that make the loan/overdraft a cheaper option?!

RAS

Nicci

You need to put the details of your options into the snowball on www.whatsthecost.com, or do the SOA as suggested and snowball that.

This will tell you how long it will take to clear the debts, how much you will pay back in total and how much interest you will pay back.

Please bear in mind that with the Additions account you would bascially be paying 1% per month, or over 12% per annum in charges on the "free" OD and some 25% on the bulk, this the percentage increasing as the value drops.

On this basis the standard OD looks a much better option than Additions or your existing accounts, as long as you arrange to reduce the value of the OD every few months and cut up and close the other accounts. What the bank is hoping is that you will continue to operate permanently at that level, in which case they make a mint.

NicciJB

Fantastic, thank you so much. That's what I needed help with. I couldn't figure out (maths was never my strong point!) - what would make me better off financially in the long run, but you have almost answered my question.

Taking out the standard overdraft and reducing it by £100 per month will be better than paying £100 off the cards, won't it - because of the lower interest rate on the overdraft? That was my take on it, anyway.

I did the snowball thing and it said I would end up paying £102 in interest, based on paying off £100 a month, high interest first.

Thanks again for your help - much appreciated :-D