Advice on using a Credit Card to clear Overdraft

GeorgeRob

Hi,

My girlfriend has a £1500 overdraft with Lloyds, which costs her around £30 a month in fees to the bank - which is essentially money down the drain. She cannot afford to spend any more on it to shrink the OD.. so..

I've been looking at the MNBA 0% 29 months card, as this allows you to transfer an Overdraft to it.

My thinking is that if we transfer the whole £1500 OD to this card, the minimum payments might be around £30, and she will therefore be actually paying off the debt - rather than just handing lloyds £30 each month. Obviously I am aware that we will have to transfer this to another 0% card in 29 months time to pay off the remainder. But..

Neither of us have ever done this before though, so I'm just wondering if someone could tell me if it's a good idea - and just advise on the basics with it.

A few questions I have are:

1. Is this a better idea than a loan (be it bank, or peer to peer)?

2. Will the minimum monthly payment be around £30?

3. She has had no credit before this - not one thing in her name, so her credit file with experian is neutral, but it does say "1 negative - has never had credit before". So is it fairly unlikely that she'd be given this card?

4. The transfer fee is 2.9%, but it also says there's a 4% fee for Overdraft transfers - is that instead of the 2.9%, or on top of?

5. Are these fees added on to the balance of the card, or do you have to pay them from a current account?

Thanks in advance!

jessie4109

I do see your point about essentially throwing money down the drain. Have you looked at the MSE card eligibility checker to see what the chances of approval are?

InsideInsurance

1) Its interest free and so better than a loan as long as you can either pay it off or get another interest free card at the end of it subject to the transfer fees

2) Need to read the cards repayment rules

3) She does have credit, she has the overdraft. Its a prime card so may be a stretch

4) Would need to see the exact wording

5) Transfer fees are added to the balance of the CC

GeorgeRob

jessie4109 wrote: »

I do see your point about essentially throwing money down the drain. Have you looked at the MSE card eligibility checker to see what the chances of approval are?

Wow, thanks for the quick replies! We have just run the eligibility checker on this card for her, and it said 20% chance!

I also checked all the others on the MSE card page, and none were more than 20%. I'm guessing it's due to her wage which is only £12.5k (junior photographers get ripped off!), and the fact we've only been in our current home for 1 year.

GeorgeRob

InsideInsurance wrote: »

1) Its interest free and so better than a loan as long as you can either pay it off or get another interest free card at the end of it subject to the transfer fees

2) Need to read the cards repayment rules

3) She does have credit, she has the overdraft. Its a prime card so may be a stretch

4) Would need to see the exact wording

5) Transfer fees are added to the balance of the CC

Thank you for the reply! You're right about the OD. She never goes over the limit, so that should be a positive on her file. Also, she has a mobile phone contract which she's never late paying, which is also not on there. We'll contact Experian and ask them why.

Couple more questions..

1. When you say "prime card" - is this because its 0%, or because its 29 months, or both?

2. In terms of an easier-to-get card - would this mean over a shorter timescale (ie 12 months not 29), or it would be 1%, or 2% instead of 0%?

Unless we can improve her credit files, I think we'll have to look at a peer-to-peer loan. Got a quote from Ratesetter for £1500 over 48 months - Monthly cost £36.69 - Total Cost £2,202.82, with APR 17.6%. Pretty devastating to have to pay £700 extra, but if that's the only option.

GeorgeRob

I've just tried the eligibility check on myself, and I got 70% chance of acceptance on the MNBA card, and 80% on others.

1. Would I be able to open the credit card in my name, then pay off *her* overdraft with it, does anyone think?! Then she would pay the minimum payments back to my card by DD each month.

2. The issue with this is I have just been refused credit for some sofas as I chose to spread it over 48 months and not pay a deposit, so I don't really want to apply for any more credit in next 6 months.

3. Could it be worth her phoning her bank Lloyds and seeing if they'll let her have a 0% (or very low rate anyway) credit card and pay off her OD with that? She wouldn't have to pass a credit check as she's with Lloyds already would she?

InsideInsurance

Prime are things targetted as those seen as a good or better credit risk. Typically its where you will see the 0% interest offers or the "lifetime" low percentages.

I havent been in the credit space for a while but generally, excluding fee based cards like the old Natwest Black, then anything under 20% APR is prime. 20-25 was a grey area and over 25% is sub prime.

Fee cards you need to deal with differently because of how APRs are calculated so the Amex British Airways Premium with a 56.4% is still prime as if you strip the fee out it comes back down to 19.9%


Ultimately, each lender has their own preferences of what they like and hate to see and so the only true way of knowing is applying

InsideInsurance

GeorgeRob wrote: »

1. Would I be able to open the credit card in my name, then pay off *her* overdraft with it, does anyone think?! Then she would pay the minimum payments back to my card by DD each month.

Its then your debt not hers. Fine if you trust her or would be happy to pay it for her even if she leaves you but worth considering.

YorkshireBoy

Are you absolutely sure she can't earn more (2nd job, freelance, sell things, etc)?


Same question for spending less?


It would appear from your numbers (£30 total) that the O/D is fairly static at £1,500 (£6 fee plus £23.xx interest at 19.94% EAR). This would indicate either she doesn't pay any money in or the O/D moves from, say, £2,000 to £1,000 throughout the month. If the latter then could she delay some payments out of the account so she's a higher balance for longer? Alternatively, could you see her through the month and she repays you at the end of the month? However, does the account 'ever' return to the black? If not, that's a worry because if they called it in she'd be snookered!


Finally, does she have Vantage on the account? Adding that would/could mean she gets a little in-credit interest to offset the debit interest. It'll be peanuts probably, but it all adds up and focusses the mind!

GeorgeRob

InsideInsurance wrote: »

Its then your debt not hers. Fine if you trust her or would be happy to pay it for her even if she leaves you but worth considering.

Haha, yes I trust her It should improve my credit file too, as long as we don't miss any payments. I'm very organised though, so I'll set up a DD from her account to my card.

I do wonder whether any of the other cards (ie any except the MNBA card which states that it does) allow you to pay off an overdraft with the card.

Does anyone know if this is normally allowed? - Paying someone else's Overdraft off using your credit card?

GeorgeRob

YorkshireBoy wrote: »

Are you absolutely sure she can't earn more (2nd job, freelance, sell things, etc)?


Same question for spending less?


It would appear from your numbers (£30 total) that the O/D is fairly static at £1,500 (£6 fee plus £23.xx interest at 19.94% EAR). This would indicate either she doesn't pay any money in or the O/D moves from, say, £2,000 to £1,000 throughout the month. If the latter then could she delay some payments out of the account so she's a higher balance for longer? Alternatively, could you see her through the month and she repays you at the end of the month? However, does the account 'ever' return to the black? If not, that's a worry because if they called it in she'd be snookered!


Finally, does she have Vantage on the account? Adding that would/could mean she gets a little in-credit interest to offset the debit interest. It'll be peanuts probably, but it all adds up and focusses the mind!

Thanks for the reply. She gets paid just under £1000 a month, so the account is only ever -£500 at it's "highest" point. Ie, by the end of each month it's at -£1500, but after wages its around -£500.

I see what you're saying, but sadly I don't earn enough to help her out like that!

Yes it is a worry, and this is why we want to get it sorted. I'm starting to think the only way is going to be if I get a card in my name and pay her OD off with it.