'Warning! Beware paying off credit cards using your overdraft' blog discussion

jellyhead

Sorry for being thick but I don't understand why you say the APR is 365% - is this the halifax overdraft we're talking about, where you get charged £1 per day even for small overdrafts?

I have that account but I don't use the overdraft. I've used an overdraft with a different bank though, and iirc the interest was worked out on my balance each day, so for most of the month I wasn't overdrawn, not until the mortgage payment went out. My interest was a lot lower than the credit card interest, because for most of the month I wasn't overdrawn.

Gordon_the_Moron

jellyhead wrote: »

Sorry for being thick but I don't understand why you say the APR is 365% - is this the halifax overdraft we're talking about, where you get charged £1 per day even for small overdrafts?

I have that account but I don't use the overdraft. I've used an overdraft with a different bank though, and iirc the interest was worked out on my balance each day, so for most of the month I wasn't overdrawn, not until the mortgage payment went out. My interest was a lot lower than the credit card interest, because for most of the month I wasn't overdrawn.

If you were overdrawn £100 for 365 days you would be charged £365 for the pleasure, a charge of 3.65 times the amount you've borrowed == 365%

jellyhead

Yes, I see the argument for not using the Halifax overdraft, but with a different bank's overdraft I still think the overdraft would be cheaper in this scenario.

fatbelly

Another point to bear in mind is that credit card liability is always single name (there may be an 'additional cardholder' but the legal liability rests with the one who took out the agreement). If the overdraft is joint with your partner and debt problems are looming then you may be adding to your partner's debt by going down this route.

Of course the 'right of set off' may make this difficult to avoid anyway.

This is what often happens when someone can no longer afford loan repayments. The bank refuses to stop collecting the instalments for a considerable time, even though they may be being written to by CAB, CCCS etc. By doing so they often convert sole name debt to joint debt, giving them two people to pursue!

Gordon_the_Moron

jellyhead wrote: »

Yes, I see the argument for not using the Halifax overdraft, but with a different bank's overdraft I still think the overdraft would be cheaper in this scenario.

Go £100 overdrawn on the first day of the month and don't add or take anything away, in a month you owe £130 (assuming 30 days in the month) for an overdraft that charges interest rather than fees it could charge an APR of 250% and still be cheaper than £30 per month.

jellyhead

Yes, another bank's overdraft is going to be cheaper than the Halifax one, but Ivanna spend isn't using a Halifax overdraft, she is paying 20% interest.

I agree with Martin's article - that not viewing the overdraft as a debt means you don't shop around for the best deal.

I am arguing on a small point about Ivanna Spend's scenario, I'm just being pedantic so I'll stop now