Credit Card vs. Overdraft

maurice28

Looking for a quick bit of advice if anyone can help. I currently have a £2000 overdraft limit with Natwest, of which I am currently about £325 in. I also have a credit card with a £700 limit, which I am using £467 of. I am hoping to have both of these cleared and paid off by September. Until then, I have a question.

Would it be worth me using my overdraft to pay off the credit card balance and bring it back to zero, and then only one line of credit open? The APR on the credit card is 16.9%, and the nominal monthly rate on the overdraft is 1.48% (19.24% EAR variable). Is it just a case of seeing which scenario would see me paying less interest until I pay them both off?

Thanks!

td_007

maurice28 wrote: »

Looking for a quick bit of advice if anyone can help. I currently have a £2000 overdraft limit with Natwest, of which I am currently about £325 in. I also have a credit card with a £700 limit, which I am using £467 of. I am hoping to have both of these cleared and paid off by September. Until then, I have a question.

Would it be worth me using my overdraft to pay off the credit card balance and bring it back to zero, and then only one line of credit open? The APR on the credit card is 16.9%, and the nominal monthly rate on the overdraft is 1.48% (19.24% EAR variable). Is it just a case of seeing which scenario would see me paying less interest until I pay them both off?

As your overdraft is at higher rate than the card, concentrate on paying off the overdraft. Considering that you aim to clear both balances in about 2.5 months, the additional interest you pay if you maintain the status quo is ~£10 (without taking into account any payment that you make between now and end sept).

ziknik

You will save a few quid* by paying off your credit card with your overdraf if your salary goes in to the same bank account because you might have a positive balance for 2 weeks per month.

One thing I would say…. Overpay when you pay off the credit card bill and then phone them to ask for a return of the overpayment. This will be needed to cover the interest in-between the day the statement was printed and the day you paid. One month’s interest plus a few quid is enough. e.g. Overpay by £5 if you were charged £3.00 interest on your last statement

I mean that literally, you might save £3-5

mrcow

The thing is, you're only talking about 2 months maximum and not a massive balance, so by the time you've faffed about, there is not much in it.

It's better to go for the scenario which will encourage you to pay if off the quickest. If that's paying off the card and then concentrating on the overdraft, then by all means go for it.