Pay off credit card?

newbie5a

Hello everybody,

I have been a subscriber to MSE's email for sometime but this is my first post on here - and I hope it will be the first of many. I really hope to be able to engage in some useful discussion.

I have a question that some of you may be able to help me with and I apologise if this has been posted before or if it should be on the credit card forum - although I figured it is more linked to savings hence its inclusion here.

I am 26 years of age and will shortly begin a new job. I have a credit card which has been interest free (on purchases) for thirteen months and this is due to end in early January 2013. Naturally, I am trying to save for my future so am unsure if I should pay off this credit card in January (it will have around £3k on it) or if I should do a balance transfer and embrace the fee (around 2.5%) and have my money remain interest free for a further 24 months. What are peoples thoughts on this?


I do have savings and would be able to pay this off if needs be. My savings are in decent accounts split between an ISA and Savings Account and are paying around 3.2%.

Obviously there is the worry of being able to obtain a second credit card with a suitable limit to enable me to do a balance transfer and this is something I would welcome advice on. I am very aware of credit card applications affecting credit scores and any application that is either rejected or does not meet the required limit is wasteful and maybe damaging.

In my situation - what would you do?

Any advice/discussion would be very much appreciated!

Thanks

opinions4u

If you can get a long term / low fee balance transfer card, I would.

But savings rates are dropping and it's not always possible to get that long term BT card. If the BT period is less than a year I'd probably clear the debt and focus heavily on building up a contingency fund.

newbie5a

opinions4u wrote: »

If you can get a long term / low fee balance transfer card, I would.

But savings rates are dropping and it's not always possible to get that long term BT card. If the BT period is less than a year I'd probably clear the debt and focus heavily on building up a contingency fund.

Thanks for your comments - much appreciated.

If anybody else has anything to add I am very keen to hear!

CLAPTON

4% BT charge is more than you can earn in interest over one year

4% BT charges is less than you can earn in interest over 2 years

so it all depends upon what card you can get and whether your interest is taxed or untaxed

mania112

regardless of working the sums, if you can afford to clear your debt, that seems like the preferable option to me.

Then you can get to work on increasing your savings again.

CLAPTON

mania112 wrote: »

regardless of working the sums, if you can afford to clear your debt, that seems like the preferable option to me.

Then you can get to work on increasing your savings again.

why?
many stoozers would say otherwise.

mania112

Personal preference. If I can afford to pay off a credit card, I will.

Moving around credit card debt is fine for some people, but it's still debt and it still needs to be paid off.

RobTang

CLAPTON wrote: »

why?
many stoozers would say otherwise.

Because financial arbitrage is arguably what got the economy into this state in the first place ?

stoozers are essentially doing what investment bankers are doing on a much smaller scale and everyone hates those guys right ?

grey_gym_sock

so long as you always have the cash available to pay off your credit cards if the 0% deals dry up, you're not taking a real risk. the moment you stray away from that principle, it's another story ...

VT82

RobTang wrote: »

stoozers are essentially doing what investment bankers are doing on a much smaller scale and everyone hates those guys right ?

Stoozers are doing what vanilla banks and building socities are doing, albeit with even less risk, thanks to FSCS protected deposits being less risky than lending secured on residential property. No need to dramatise it with the 'investment banker' tag.

If the sums work when the time comes, and you know you will have the discpline to ring-fence your savings, I would stooze.

pqrdef

It's a fine calculation based on your marginal rate of interest and tax. For instance, you can't count the tax benefit of an ISA as stoozing profit if you'd be maxing out your ISA allowance anyway.

On the other hand, you can count the benefit of sticking the stooze money in a fixed-term account. If you don't want a fixed-term account because you haven't enough liquid savings yet, then the stooze is less profitable, but you're doing it for liquidity as well as cash.

A good time to stooze is when you can use the stooze money to take up more of your annual ISA allowance than you otherwise would. Then, if your ISA money is a long-term pot, you get a long-term tax benefit on top of the immediate profit.