Loan or credit card

smiler247

This is probably a stupid question so I apologise in advance.

I currently have around 15k on credit cards currently on 0%, I pay around £600 per month off on average and also I use any supplementary income to pay more off when I can.

I need to make some urgent repairs at home. I have the option of using another 0% deal on one of my cards, of which I have more than enough credit limit ... I need about 2k.
I have enough scope to balance transfer from cards when the current 0% ends. My income is due to increase in the next month or two.

Obviously by transferring balances a fee will be incurred each time. Am I better off taking out a loan to consolidate everything and pay for the repairs or just continue transferring on CCs?

Thank you for your time.

clayton16749

Taking out a loan to consolidate the existing 15k debt and the extra for the repairs sounds like a better approach to me. That way, you make fixed payments every month and all the debt is gone in 5 years (or whatever loan term you take out).

dtsazza

In general, from a purely financial perspective, the balance transfer fee is likely to be the cheaper option.

You can divide the fee by the duration of the 0% deal (in years) to get the effective "interest rate" you'd pay on the "loan". For example, if you paid a 3% fee to transfer a balance for 18 months, then this would cost you roughly the same as taking out a 2% APR loan over the same period (3 / 1.5).


This does of course ignore the question of whether you would be disciplined enough to save up the lump sum in time to pay it off, or whether the "forced saving" of conventional loan repayments would help. Only you can give an honest answer to how well you'd handle this.

Equally it doesn't consider impact on creditworthiness for future products. I don't know what the difference would be, though my uninformed guess would be that borrowing £2,00 through either approach (and paying it back on time) would have a similar effect either way.

Foxy-Stoat_3

So you have £15,000 at zero interest and your asking if its a good idea to transfer it to a loan so you can borrow more money and spread the whole balance over a longer period?

Balance transfer fees are normally 1-3% on the balance (so £60 maximum on £2000) Am sure the interest on a £2,000 loan will be more than that over the full term, assuming you are able to take out a loan with that much debt.

Sounds like you need to stop spending and start clearing down the balance's and save for these essential repairs.

smiler247

Thank you for your advice. As I said in my original post, I am using all the spare income I have to clear the balances.