Credit card at 0% or savings fund - Which looks better?

pmartin86

Hiya

First off, time to do the happy dance :j! I was accepted for a new Barclaycard yesterday with a 0% rate on balance transfers for 23 months meaning I now no longer have to pay interest on my Credit Card bill. Now that the pressure if off (I was paying every spare penny I had into paying it each month) should I continue to plug away at it, or should I look into opening a savings acount and making the minimum payment each month? Basicly this is my last debt and I'm looking to start saving for a house deposit, what would be my best option in the eyes of a future potential morgague lender? If i have savings of x amount but its taken 23 months to pay off a CC balance or pay off the CC balance over the next 3-4 months and THEN start saving?

Regards
Paul

guesswho2000

pmartin86 wrote: »

Hiya

First off, time to do the happy dance :j! I was accepted for a new Barclaycard yesterday with a 0% rate on balance transfers for 23 months meaning I now no longer have to pay interest on my Credit Card bill. Now that the pressure if off (I was paying every spare penny I had into paying it each month) should I continue to plug away at it, or should I look into opening a savings acount and making the minimum payment each month? Basicly this is my last debt and I'm looking to start saving for a house deposit, what would be my best option in the eyes of a future potential morgague lender? If i have savings of x amount but its taken 23 months to pay off a CC balance or pay off the CC balance over the next 3-4 months and THEN start saving?

Regards
Paul

As long as no payments are missed and the debt is paid, then it won't matter how long it took to a potential lender.

As you've paid the transfer fee, you may as well take advantage of the long 0% period.

For example, transferring £1000 with a 2.9% fee (let's say) would cost £29. If you pay the debt off within 6 months, that's an APR of 5.8%, if you pay it in 3 months it's 11.6%. If you pay it off in 23 months, it's 1.51%, an amount which can easily be bettered by a savings account.

Therefore, your best option would be to make your minimum payment plus £1 (to avoid the min marker on your CRA file) while putting the rest in your savings. When the 0% expires, pay the debt in full and you'll have made a small profit on whatever you've saved. :beer:

sfax

Don't pay off only minimum, at least pay off an amount slightly higher than the minimum. Paying off only the minimum each month looks desperate to lenders.

Consider where you'll be in 23 months. There is no guarantee you'll get another BT card because you already have one and therefore will have more debt available to you than you did when you applied for this card - consider your future debt/credit limit ratio and keep it below 40% if possible if you want new credit in 23 months.

If you can't shift what's left on the BT card, you'll start paying a lot of interest. Even if you can shift it to another 0% card, it will cost you about 3% of what's left on it so the higher the amount, the higher the fee.

For these reasons i would personally concentrate on paying down the debt first and only start saving once this has been cleared. The main concern is the risk of not being able to move the balance you have remaining on the Barclaycard after 23 months

JimmyTheWig

pmartin86 wrote: »

Basicly this is my last debt and I'm looking to start saving for a house deposit, what would be my best option in the eyes of a future potential morgague lender? If i have savings of x amount but its taken 23 months to pay off a CC balance or pay off the CC balance over the next 3-4 months and THEN start saving?

As long as the credit card balance is clear by the time you apply for your mortgage I don't see the mortgage company will be that bothered.
I agree with what others are saying that by paying more than the minimum (even by £1) makes it look better than paying the minimum.
The worst thing you could do would be to miss a payment, so might be best to set up a direct debit for this, if you haven't already.

All that really matters, then, is what savings balance you have at the end of it. Lets say you want to apply for a mortgage in 2 years time and can afford to put away (including debt repayments) £250 a month. Lets say your credit card balance is currently £1000.

Option 1. Pay off your credit card slowly and start saving straight away.
You can pay £44 a month off your credit card and £206 into savings for 22 months.
The next month you can pay the balance of £32 off your credit card and £218 into savings.
The final month you can pay £250 into savings.
Amount paid into savings = 206x22 + 218x1 + 250x1 = 5000.

Option 2. Pay off your credit card as quickly as you can and then start saving.
You can pay £250 a month off your credit card and nothing in to savings for the first 4 months.
You can then pay £250 into savings for the remaining 20 months.
Amount paid into savings = 0x4 + 250x20 = 5000.

So you pay the same amount of money into savings regardless of how you pay your credit card balance off.
The difference will be in the interest you receive.
If you can get 3% after tax on your savings then...
With option 1 you will receive around £155.50 in interest.
With option 2 you will receive around £131.50 in interest.

By going with option 1 you will be £24 better off. So you might as well do this.

pmartin86

Thank you all for your advice, i think im going to go down the route of a little of both, the balance of the credit now stands at £1,031 (£1000 BT + 3.1% tranfer fee, refunded to 2.8% if i stay within agreed limits and payments for the first 3 months) I'm currently paying £200 a month DD off the old balance plus topping up with whatever I had spare at the end of the month (usualy another £100-£150) If I pay £8, and set up a DD for £85 a month for 12 months that will clear the balance, give me a nice set date to be debt free and I can plug in £115 into a savings account plus my spares, would this seem like a reasonable plan?

The next questions I suppose is where to save? Would a tax free ISA be the best place to start?

Regards
Paul

JimmyTheWig

Sounds perfectly reasonable to me.

Regular savers generally give the highest rate of interest.
Cash ISAs are normally considered best after these due, as you say, to them being tax-free.

pmartin86

Appogies for my ignorance, but what is a regular saver?

Regards
Paul

guesswho2000

pmartin86 wrote: »

Appogies for my ignorance, but what is a regular saver?

Regards
Paul

A type of savings account, usually offered alongside current accounts, which allow you to pay in a maximum amount each month.

I currently have the Flexclusive Regular Saver from Nationwide (no longer offered unfortunately) which pays 6% interest, I can deposit a maximum of £250 per month into this.

They're not usually suitable for someone with a lump sum to deposit, but are pretty good for someone with no lump sum and a set amount to save each month. I think First Direct pay 8% on theirs.

EDIT: The high interest rate is usually for a set period, say a year or so, so be sure to move the money elsewhere at the end or the rate potentially drops to peanuts!

pmartin86

Ok that sounds amout the sort of thing id want, as posted above id be looking to pay £115 a month. What about access? As I've only just become fincialy stable I'd like to be able to get at it should it be needed without a massive penalty, else I'll probably go for a lower interest account that has easy access.

I've been looking at this account

http://www.natwest.com/personal/savings/g1/instant-access/e-savings.ashx#

As im allready a natwest customer, does that seem like a reasonable place to use? Am I right in assuming I'll basicly get 0.234% Monthly interest on my monthly balance?

Regards
Paul.

Any

guesswho2000 wrote: »

A type of savings account, usually offered alongside current accounts, which allow you to pay in a maximum amount each month.

I currently have the Flexclusive Regular Saver from Nationwide (no longer offered unfortunately) which pays 6% interest, I can deposit a maximum of £250 per month into this.

They're not usually suitable for someone with a lump sum to deposit, but are pretty good for someone with no lump sum and a set amount to save each month. I think First Direct pay 8% on theirs.

EDIT: The high interest rate is usually for a set period, say a year or so, so be sure to move the money elsewhere at the end or the rate potentially drops to peanuts!

Just to add - one of the conditions is also usually that the payment in MUST be regular ie setting up DD or SO and quite often no withdrawalls allowed.

I have the First Direct 8% one, I had to set up SO to transfer an amount between £50 and £300 every month and while I can vary these amounts I must pay at least £50 in.
No withdrawalls allowed.

Any

pmartin86 wrote: »

Ok that sounds amout the sort of thing id want, as posted above id be looking to pay £115 a month. What about access? As I've only just become fincialy stable I'd like to be able to get at it should it be needed without a massive penalty, else I'll probably go for a lower interest account that has easy access.

I've been looking at this account

http://www.natwest.com/personal/savings/g1/instant-access/e-savings.ashx#

As im allready a natwest customer, does that seem like a reasonable place to use? Am I right in assuming I'll basicly get 0.234% Monthly interest on my monthly balance?

Regards
Paul.

This seems simple enough account. With instant access while still paying some interest. Though you can get ISA with rate like that and they also usually allow some withdrawalls and while you can get similar rates those are tax free!
If you go for the Natwest - just don't forget to change after 12 months.