Basic maths question

Legacy_user

Decided to take advantage of 2.9% balance transfer rate from MBNA, it's not as good as some others get but I'm happy at the moment.
Can anyone tell me how to calculate the total amount I will actually pay if I transfer £7700 and pay it back over 24 or 30 months.

Joe_Bloggs

That sounds a pretty good rate for a 2 to 2.5 year loan. Are there any transfer fees ?

If this ends up the highest rate debt that you have then you are very lucky. If not then devote as much as you can to debts at higher interest rates.

My maths fail me at this moment as it all depends upon how much you can pay each month. My maths actually failed earlier than this, but any excuse in a storm of uncertainty.
J_B.
My guess is more than (AKA >) £7700
and less than (AKA <) £8153 (Two years compound interest on full amount).

Galstonian

It will depend on how much you pay back each month which will (presumably) depend on what the minimum payment is.

dthyer

Well I've had a quick go with a spreadsheet, and I reckon:
24 months => £330.62 per month, £7934.87 in total, whereas:
30 months => £266.40 per month, £7991.93 in total.

But this is assuming that the rate stays at 2.9% p.a. (0.2417% per month), and that the calculation works the same way as my spreadsheet. Basically the interest starts at just under £19 a month at the beginning, and then it gradually reduces as you pay off the debt.

I hope this helps,

DT

System

I want to treat it like a loan and pay the same amount off each month so £260 - £330 sounds ok. Obviously the 2.9% rate will expire but I hope to transfer on to another similar rate or 0%. I don't intend to use the card for purchases. This will be the highest rate of interest on any of our debt besides the mortgage. Anything else is at 0%.
The transfer fee was £35. I think I'm still saving a reasonable amount of money as compared with a normal personal loan of say about 6.5% without having to go through another credit search.

westernpromise

I want to treat it like a loan and pay the same amount off each month

Not the optimal thing to do. What you should do is pay the minimum every month to the card and then pay the rest of the monthly instalment to yourself, i.e. into a high interest account. If you aren't paying interest on the debt, you shouldn't do any more than pay off the minimum. The rest of what you pay you save, so that it earns you interest. Eventually you will accumulate savings in excess of the outstanding debt.

For instance, let's assume you can borrow your £7,700 at 0% indefinitely via balance transfers.

To pay that back over 30 months, you'd need to make a monthly payment of £257.

The minimum repayment most credit cards require is 3% of the outstanding balance. 3% of £7,700, the initial balance, is £231.

So in month 1 you pay £231 to the card and put £26 (257 less 231) into a cash mini ISA at 5.35% net.

In month 2 you pay £223 to the card and put £34 into your cash mini ISA.

After 30 months of this you will have paid £3,580 back to the card company. You still owe them £4,120, but your cash mini ISA account now holds £4,331 because you've earned £211 in interest over the last 30 months.

After 30 months you either keep transferring the debt at 0%, continuing to earn interest on the £4,331, or you pay the card company their £4,120 back and keep the £211 for yourself.

In effect, if you do it this way, you pretty much pay the loan off after 29 months rather than 30. Free money!

Galstonian

The amounts will be quite small in this case because the advance is not interest free, it is at 2.9%. The same principle applies while there is still a difference between what you pay in interest and what you can earn in interest elsewhere (after tax).

Is the 2.9% offer for the life of the balance or does it have a set time limit?