really confused with credit card repayment and charges

Ch3rrie

Hi
Can someone please help me understand this.
My partner has a halifax credit card and he owes £450 on it. He doesn't use this card anymore.
On the online statement it says he has paid £22.92 this month but it seems only about half of that is paying off the debt!!! There is a £4 charge for repayment cover, £9.90 charge for interest.
We have the payment set up by direct debit and I am sure they take out as little as we have to pay back a month.

It says Typical 27.9% APR (variable)

That seems a lot right?
We can't afford to pay it off right now or we would, I was thinking could we move this to another credit card that charges less?
I've never delt with a credit card before so I have no idea what to do for the best.

chattychappy

Those figures "add up" and the interest rate is a pretty typical standard rate. Some people pay alot more. Watch out for any increases - you can reject these if you do so promptly. A condition of this is you don't use the card anymore. Not an issue for you, it seems.

But yeah, if he can't pay it off very soon then he might be better off getting a new card and transferring the balance. A number of cards (eg MBNA) offer a period interest free, but you pay a fee typically 3% to 5% for doing the transfer. Since he's paying about 2% a month in interest at the moment, he would be quids in.

Other cards offer "life of balance" deals - ie rather than 0% for a fixed period (typically 12 months) and a fee, they offer a higher rate (eg 6.9%) but until the balance is eventually cleared. Similar fee applies.

Getting the best deals does depend on having a clean credit record and good profile. (Income, not too much debt, on electoral roll etc.)

On the halifax card he might want to consider whether the payment protection is worth it.

Finally, whatever you do, don't just set up a DD and leave it at that. Do try and make additional payments as and when you can afford it.

bobbydrake50

Do you really need the repayment cover? If you get rid of that then the balance will reduce a lot quicker. You might be better setting a direct debit up for a set amount (say £25) per month - it will go down a lot quicker then.

12bdebt3

It depends how you sort your money out and what bank you're with but I'd advise getting an overdraft and make a full payment of the credit card, only if you have the ability to pay it back! My overdraft is 18.9% APR and my credit card is 19.9% APR. My credit card insures any electrical purchases. So when I buy something I get it on my credit card, pay it off with my debit account and then pay my overdraft off at a cheaper rate. Obviously it will only work if you can get an overdraft for less than the 27.9% you're paying at the moment.

Ch3rrie

Thanks for your replies.
We are on the electoral roll (at least I think so!). I'm not sure how they'd see his income, he is in a permanent job now but only since the start of the year and I think it's classed as low income too.
I don't know if he does need the repayment cover. Does that just cover him if he is unable to repay for whatever reason? If so then no he doesn't need it. He has been in a stable job since the start of the year now and before that, when he was looking and going in and out of jobs he was still able to make the payment.

He has an overdraft we are working on paying off too. But I'm sure we'd save money if we paid off this credit card and then the overdraft. I'll have to work it out. If we were to do that, I'm sure we could pay off the credit card by Febuary.
I have no idea how much APR the overdraft is! I will find out asap.

Ch3rrie

It looks like paying the credit card first would be best. His bank account overdraft says 19.9% EAR and our joint says 19.89%EAR
So paying the credit card off first would be best? I don't know the difference between APR and EAR though!
Do you know if the 19.9% is 19.09 or 19.90? Just wondering which bank charges more too...

YorkshireBoy

Ch3rrie wrote: »

I don't know the difference between APR and EAR though!

The former relates to loans, credit cards, and mortgages and includes fees (but not BT fees), whereas the latter relates to current accounts only and does not include any fees (whether authorised or unauthorised). As a general rule you can compare like-for-like.

Do you know if the 19.9% is 19.09 or 19.90?

19.90% of course.

12bdebt3

Ch3rrie wrote: »

I think it's classed as low income too.

http://www.direct.gov.uk/en/Diol1/DoItOnline/DoItOnlineByCategory/DG_172666

This tool might help work out if you are entitled to any benefits/tax credits. Me and my girlfriend are on just too much of an income to get a small amount of housing benefit. If I was 25+ I would be entitled to working tax credits.

I'd advise taking a loan out at 19% APR and consolidating all your loans. Use the loans to pay off all the credit cards, then make monthly payments on one loan. Only do this if you are willing to cut up your credit cards though.

I got a loan to consolidate my debts. I pay off the loan once a month, I have no other debts and I only use my credit card for electrical purchases (and pay it off immediately) because it insures them. The only drawback is that the loan amounts to 1/5 of my wage, which means sometimes I can creep into my overdraft, I have been lucky with work bonuses and payrises though. If you are going to consolidate your debts into a loan make sure that you can afford the monthly repayments and remember that the longer you pay the loan off for the more it will cost you in the long run due to the interest.

It would help if you could state all of your debts, how much they are, how much you pay back and the APR so that we can calculate how much you'd pay back on a loan to cover them all. This might give you a better idea of how you could manage your money. Plus it gets rid of the stress of paying off your credit cards every month, you just have a direct debit from your account after you get paid that takes away the loan money, then it's forgotten and you base your finances on the remaining amount of money you have. Plus once you finish paying off the loan as long as you haven't amounted any more debt. You could set up a savings account and use the money you were paying towards the loan to start saving as you will be used to your income from paying the loan.

peterbaker

It is very important that if the OP's partner cannot avail himself of a lower rate for a year via a balance transfer to another card that he makes arrangements to start paying off a fixed amount of at least £25 as bobbydrake50 suggests.


As an exercise I have played with the numbers provide by the OP and come up with the following revelations:

• If the OP's partner starts paying £25 per month by DD instead of just paying the '5% minimum or £5 if greater' then he will still take around 27 months to clear the credit card debt.
• If the OP's partner also kills off the Payment Protection Insurance (PPI) then that might reduce the time to clear to around 24 months.

• If however he just continues plodding and paying what is requested each month then it'll take around EIGHT AND A HALF YEARS!!!
• If he kills off the PPI but still continues plodding with the minimum payment requested, it'll still take SIX AND A HALF YEARS to clear!!!

NOTE: These are approximations based on the limited info provided thus far by the OP and assume a PPI premium rate of 0.80% per month on the outstanding statement balance amongst other things.

MORAL OF THE STORY: Double Digit APRs are killers. It is very easy to say, but if you borrow at these sort of rates, you MUST have a sound plan to pay it off in large chunks over a relatively short period. Also, be sure the insurance you are paying for will work for you. From the sounds of the OP's partner's working pattern before 2010 (not unusual by any stretch of the imagination) then he would probably have been unable to have used his PPI for involuntary unemployment until a few months ago. That begs questions about how it was sold to him but that's another story for investigation later using ideas found here perhaps: Reclaim PPI & Other Insurance

In the EIGHT AND A HALF years to clear scenario above which could easily happen if the OP's partner takes no action other than to keep plodding, he will have paid another £385 in interest and £150 in insurance premiums by then, assuming the rates don't go up further at some stage!

PS A 'Consolidation' loan may be a possibility, but you might be lucky to get rates under 20% or an offer of a bank loan at all in the current climate. The two main aims are to reduce the interest rate drastically in whatever way is possible and of course to pay as much each month as you can. If a lower rate via a new card balance transfer promotion is not a possibility, or a sub 20% consolidation loan from the bank, then maybe a senior relative might be glad to act as the bank if you set up as standing order and make sure you pay them without fail. Otherwise you are going to have to knuckle down at that £25 per month suggested by bobbydrake50 and pay off extra each time you get a few spare quid.

Ch3rrie

Thank you for all the information everyone.
wow... 8 and a half years! Right now we would have no problem paying the £25 a month. My partner is getting working tax credits and it all goes into his bank account with the overdraft to pay off.
The debt isn't as much as some. The credit card has £450 to pay, my partners overdraft is 1,000. He got out of this and then the car decided it needed most of it to work again and he's around £600 overdrawn now.
Our joint overdraft is 1.8k but we are usually about £300 overdrawn at the end of the month. So all together it's about 1,500.