(Stupid question?) Is a 6.5% Credit Card better than a 19.94% EAR Lloyds OD?

londonTiger

Voyager2002 wrote: »

Yes: the law has changed so that people are in effect forced to pay off credit card debt at a reasonable rate, reducing the total amount of interest that they end up paying.

Even on 0% interest cards?

I have a tesco credit card with £2500 balance and I only pay £30 minimum per month

Tixy

GeorgeRob wrote: »

At same time, get a 0% spending card which she just uses for petrol, paying it straight back from her bank account, or setting up a DD for it.

If she is going to repay in full each statement then she doesn't need the new card to be 0%, it doesn't matter what the APR is as she won't pay interest if its only used for petrol and always paid in full.

Assuming the purpose of this card is to start building a positive credit history then she needs to wait until the statement is generated before making the payment, so that her credit file reflects that she is using the card.

Setting up a DD is a good way to do this, not only because she won't miss a payment but also because she may be more likely to pay than if she was making her payments manually.

Cornucopia

Many CC companies now offer a choice of full amount DD, which is ideal for this as it takes away any danger of interest payments entirely.

SuperHan

Ditto on the don't bother with a 0% card, just pay it off in full and there is no interest.

Plus, with just a long standing overdraft on her credit report and minimal income, she's unlikely to be accepted for a 0% CC.

Foxy-Stoat_3

Yes was the answer to the original question.

Good luck.

GeorgeRob

Tixy wrote: »

If she is going to repay in full each statement then she doesn't need the new card to be 0%, it doesn't matter what the APR is as she won't pay interest if its only used for petrol and always paid in full.

Assuming the purpose of this card is to start building a positive credit history then she needs to wait until the statement is generated before making the payment, so that her credit file reflects that she is using the card.

Setting up a DD is a good way to do this, not only because she won't miss a payment but also because she may be more likely to pay than if she was making her payments manually.

OK great, thanks.

So will the credit card company set up the DD automatically, and to be taken after the statement is generated?

Foxy-Stoat_3

GeorgeRob wrote: »

OK great, thanks.

So will the credit card company set up the DD automatically, and to be taken after the statement is generated?

No

You have to set up a direct debit or standing order and the payment will be taken on or before the due date.

CLAPTON

GeorgeRob wrote: »

After considering all options, I think this is the plan:

Once holiday is done, start paying off £50 a month on the OD.

At same time, get a 0% spending card which she just uses for petrol, paying it straight back from her bank account, or setting up a DD for it.

This way she is reducing the debt, and building a credit history. Then hopefully after 6 months the debt will be £300 less, and she might be able to get a 0% balance transfer card to transfer the remaining £1200 on to. Then she can pay £50 a month off that instead of the OD, and won't have to pay Lloyds any fees at all.

Thanks for everyone's help.

what exactly do you mean by pay £50 off the OD?

as the fees/interest are 25-30 then if she only actually pays 50 per month then she will only be reducing the balance by 20-25 so after 6 months only 120- 150 will be paid off.

again the 0% CC would be best used by NOT paying in full, but using it for all normal spending and hence reduce the interest on the OD (and perhaps fees depending upon the T&Cs).

GeorgeRob

CLAPTON wrote: »

what exactly do you mean by pay £50 off the OD?

as the fees/interest are 25-30 then if she only actually pays 50 per month then she will only be reducing the balance by 20-25 so after 6 months only 120- 150 will be paid off.

again the 0% CC would be best used by NOT paying in full, but using it for all normal spending and hence reduce the interest on the OD (and perhaps fees depending upon the T&Cs).

Sorry I mean reduce her OD by £50 each month. Lloyds allow you to reduce it in increments of £50. So if she does this whilst spending on a credit card to build up good credit history, hopefully once the good credit history is built up the amount of debt left will be smaller, and she won't have to balance transfer quite so much.

CLAPTON

so her plan is to pay 70-80 off her overdraft each month?

unless she is absolutely sure she can maintain the £80 each month, then it would be unwise to formally reduce the OD limit because of the danger of going over it.