Overdraft to credit card - Good idea?

steveo1982

Hello all,

Long time reader, first time poster!

I currently have a £1000 overdraft and I hit this limit month in month out. On average the interest I pay on this is £10 a month give or take on top of my £12.95 a month bank charges (still not sure what im paying for but oh well thats another task to be looked at). I also have £400 on an interest free credit card which is still interest free until next January.

What I am looking for is advice on if its best for me to pay my overdraft with my credit card, Change my bank account to a free one with no overdraft facility and focus paying off the credit card or increase my overdraft limit and pay off the credit card then cancel this so I dont have the temptation to use it again.

I have been in my overdraft for far too long (12 years) and now I want out of it. I would like to be fully clear of this debt within the next 12 months.

Thanks for any advice given.

Steve

ItsOver

Hi Steve

Does your credit card allow money transfers?

steveo1982

Yes and the fee is 4% of the amount to be transferred.

ItsOver

I was in a similar position, although instead of an overdraft I had a loan I wanted to get rid of. I opted for a money transfer and it's now on a 0% card that lasts for 26 months.

I have fixed my finances and understand why I got into debt in the first place. If you are confident that you can make the minimum card payments every month (otherwise you could lose the 0% deal) then I'd suggest sticking the overdraft on your card and paying it off as quickly as possible.

I'd only do this if you've looked at your incomings and outgoings and are happy that you can pay the card off without getting into further debt elsewhere.

Tixy

Hi Steve

You really need to work out how much you can afford to pay towards this debt each month and compare that to the minimum payment that would be on the credit card (many cards have a £25 minimum payment which is more than you are currently repaying against this debt each month).

Also consider what you will do in Jan 15 if you have only repaid say £275 from this debt and still have £765 left to pay - what APR will it revert to at that point, and what would the minimum payment be at that point and could you afford it?

steveo1982

My monthly income is £1900 and outgoings are £1450 but this doesnt include bank charges and interest on the account from the overdraft. The idea I had was to have no overdraft on my current account, have the overdraft transferred to credit card so the interest free debt on that would be £1500 including any transfer fees. I would then use anything left in the current account after all bills ect taken to pay the balance on the CC and then any small spendings put on the CC so the current account would not be touched except for anything other than bills. The average amount I would be paying to the CC each month could be upto £400 with a minimum spend so £300 would be going towards the initial debt.

steveo1982

By my own admittance I spend money on things that I shouldnt do and I find it difficult keeping control of my money. If I have all charges in one place it makes it easier for me to keep a tighter grip on this.

Would it also be worth me moving bank to a free account to do away with the £12.95 a month charge for no real benefit ?

ItsOver

If it was me, I'd do the transfer and then just pay the minimum for the 1st month, to allow the current account to recover.

Then I'd use the current account for any small spendings and whatever is left the day before payday I'd pay off the credit card. This is because I'm not a huge fan of buying on credit cards, as I was stung when younger. Do you have 0% on purchases?

Edit (didn't see the 2nd post):

I'd get rid of the £12.95 charge unless you use the benefits that come with your bank account. Generally they are to do with insurances, holidays etc but you'd have to check.

If you struggle to control your spending I'd suggest you remedy that before deciding on your next step - by budgeting, maybe doing an SOA.

steveo1982

ItsOver wrote: »

If it was me, I'd do the transfer and then just pay the minimum for the 1st month, to allow the current account to recover.

Then I'd use the current account for any small spendings and whatever is left the day before payday I'd pay off the credit card. This is because I'm not a huge fan of buying on credit cards, as I was stung when younger. Do you have 0% on purchases?

Edit (didn't see the 2nd post):

I'd get rid of the £12.95 charge unless you use the benefits that come with your bank account. Generally they are to do with insurances, holidays etc but you'd have to check.

.

Yea that was another thought of mine. Use whatever I had left before payday to pay as much as I could off the CC. The spending is not massive things but its an exercise in self control, Its like spending £3 here and £6 there. Ebay is a killer for this!

I was looking at moving from RBS to First Direct. They give you £125 for changing which I would put towards the debt and also its free because I would be paying in more than £1000 a month.

steveo1982

I have been with RBS for a long time 20+ years and didnt really want to leave. My mortgage is also with Halifax so would it be worth me moving my account to them and get a discount on my mortgage rate ?

Tixy

Check what benefits you are getting from the current account, which of them you might use and then if you could get those items cheaper by buying independantly.
A lot of people don't use the benefits so its better to switch to fee free. That said I have a paid account because I do use the benefits it gives.

First Direct accounts generally have very good customer reviews, so with the £125 bonus on top it could well be worth doing.

edit - with halifax I'd guess you'd need to factor in how much saving you'd get with the mortgage etc.