Should I pay off my credit card with my overdraft?

dantheman2010

Good morning all,

I have £2000 on a Tesco Mastercard which is charged at 15.7% standard, so I am getting charged about £25-30.00 per month as I can only afford to pay off about £100 per month currently. It was 0% interest but I stupidly used the card for a couple of small gambling transactions, classed as cash transactions so now as they cash transactions are paid off last I have to pay interest on the whole balance....robbery.

I cant get a 0% interest card as my rating is slightly crap at the moment (no defaults, just lots of apps).

However, I was wondering whether I would be better off clearing the credit card with my Natwest overdraft and just reducing the overdraft as and when I can, obviously each time I get paid the overdraft would be cleared, subsequently going back overdrawn as the normal monthly bills come out.

The overdraft interest rates are;

Monthly nominal 1.42%
Annual nominal 17.73%
EAR Variable 19.24%

I have no idea what this means, so I dont know whether I will get charged less monthly interest on the overdraft if I have the £2k there or on the credit card.

Its very annoying that I am paying £100 off the debt and getting charged about £25-30 per month interest. Especially as I only spent £100 on the gambling ("cash transaction") and have paid that back ten fold in monthly payments. I cant believe they clear that £100 last and so therefore will be charged interest on the full £2000 until its all gone, I have written to complain but I am sure nothing will be done.

Can someone please advise on the interest rates on the card compared to overdraft as I have no clue.

Thank you.

P.S I aim to have the £2k cleared my April next year.

chattychappy

Based on the figures you give, there's not a huge difference (overdraft looks worse). I would stick with the credit card - overdrafts are repayable on demand, credit cards aren't. So by paying it off you lose flexibility - the credit card might get cancelled and you have no breathing space.

Simply putting a couple of gambling transactions through shouldn't lose mean you pay interest on the whole lot. The 0% should still apply to whatever it originally applied to. Just payments will knock down the 0% balance first, whilst you are charged (compounded) interest on the gambling amount. Since only £100 was outside the 0% deal, I can't see why you paying £20-£30 interest a month. Did you break the terms of the deal, or has it actually come to an end?

[If you have a good credit record I would get another card and do a BT - probably go for a 0% BT deal since you think you can pay off by April (perhaps sooner without the interest charge).] - just remembered OP said this wasn't an option. So I think it's a case of leaving it on the credit card for now.

Fiddlestick

dantheman2010 wrote: »

I cant believe they clear that £100 last

It's standard practice to apply payments to the cheapest debt first (i.e. balance transfers) - check the terms and conditions that you read before signing.

and so therefore will be charged interest on the full £2000 until its all gone, I have written to complain but I am sure nothing will be done.

You should only be paying the interest charged on the £100, not on the full balance as it was a 0% balance transfer.

Have you broken the card agreement in some way?

YorkshireBoy

So you have £2,000 at 15.7%* (presumably that's the annual non-compounded rate, not the APR?), and £100 at circa 25% APR**?

The interest on the £100 is around £25 per year (£17 between now and next April), so not the end of the world? Did you win with the gambling? Hopefully you did and the winnings will cover the cash interest.


* £2,000 x 15.7% / 12 = £29.16

** £100 x 25% / 12 = £2.08

Total monthly interest circa £31.24 ??

izools

Now... what is important here is how much you bring in each month.

If say for example your NET monthly income is £1,800 and you keep an average bank balance of £600DR then your interest will be MUCH MUCH less than with the Credit Card.

If however you'll be nudging the £2,000DR mark for most of the month then it'll be most expensive.

What do you expect your average bank balance to be after using your OD to clear the card?

Also, if you can only afford £100 PCM, how do you expect to clear it within 9 months?

dantheman2010

I didnt break the terms of the card, I did a balance transfer at 0% and purchases were 0% for about 6 months, it has only been 3 months since I took out the card. I asked why I was getting charged interest, they said because of the gambling transactions. In all honesty it was probably nearer the £300 mark, with about £100 put back on to the card from the same company. But with usual monthly payments I have cleared the £200 difference.

I might ring and clarify exactly why my interest was £30 this month on a £1900 debt, majority of which was balance transfer at 0% and purchases also at 0%.

I should have it cleared by March as I will be earning at least £250 more a month from Jan and that will be put with the £100 per month to clear it quicker.

YorkshireBoy

dantheman2010 wrote: »

I did a balance transfer at 0% and purchases were 0% for about 6 months, it has only been 3 months since I took out the card.

Something's amiss here. This card has 0% for 6 months on BTs (with a 2.9% fee, but may have been 2% back then) and 0% on purchases for 12 months.

Unless you've paid late or gone over your limit, and lost the 0% (both of which should still be running), then the only interest should be the cash interest on your £100-300 gambling transaction(s), ie a few quid a month.

izools

dantheman2010 wrote: »

I didnt break the terms of the card, I did a balance transfer at 0% and purchases were 0% for about 6 months, it has only been 3 months since I took out the card. I asked why I was getting charged interest, they said because of the gambling transactions. In all honesty it was probably nearer the £300 mark, with about £100 put back on to the card from the same company. But with usual monthly payments I have cleared the £200 difference.

I might ring and clarify exactly why my interest was £30 this month on a £1900 debt, majority of which was balance transfer at 0% and purchases also at 0%.

I should have it cleared by March as I will be earning at least £250 more a month from Jan and that will be put with the £100 per month to clear it quicker.

Never look at your debt from the stance of "I'll be earning X in X months"... It's a very dangerous way to look at things. Consider how your finances are in the present tense only.

It does sound odd that you're being charged so much interest - £300 cash at 27.9% (for example) would be under £7 a month.

If you're being charge more then one of the following applies:

1. You borrowed more than £300 as cash / gambling
2. You missed a payment or went over limit resulting in the card company cancelling your offer
3. The card company has ballsed up and needs to correct their mistakes

Good luck

dantheman2010

izools wrote: »

Never look at your debt from the stance of "I'll be earning X in X months"... It's a very dangerous way to look at things. Consider how your finances are in the present tense only.

It does sound odd that you're being charged so much interest - £300 cash at 27.9% (for example) would be under £7 a month.

If you're being charge more then one of the following applies:

1. You borrowed more than £300 as cash / gambling
2. You missed a payment or went over limit resulting in the card company cancelling your offer
3. The card company has ballsed up and needs to correct their mistakes

Good luck

I definately havent gone over the limit and I rang yesterday and they said the interest is charged on the cash transactions, nothing else on the card was a cash transaction. So I will ring them and go through it with a fine tooth comb later. Thanks.

izools

Check your latest statement. It should break down your interest charges into three categories:

Interest charged on Purchases @ X.xx% Per Month £x.xx
Interest charged on Balance Transfers @ X.xx% per month £x.xx
Interest charged on Cash Advances @ X.xx% per month £x.xx

Check what it says and feel free to post the figures and I / we'll let you know if it looks wrong

I,_Brian

Fiddlestick wrote: »

It's standard practice to apply payments to the cheapest debt first (i.e. balance transfers) - check the terms and conditions that you read before signing.

So far as I understand, it is with Nationwide Building Society, but not so much for other card providers.