Silly question?

Alibalibee

I have an outstanding debt with a mail order catalogue, with an interest rate of 36.96%. I have a poor credit score and was just about to apply for a lower rate interest (29.7%) credit card (using the Credit Card Eligibility Checker) with the intention of paying off as much of the catalogue as the credit card limit would allow. And then it occured to me... Doesn't this mean, if I can't pay off the full catalogue amount but only part of it, that I'd be paying interest twice?

Or is my brain not working properly?!

Any help gratefully received! Thanks.

grumbler

Alibalibee wrote: »

... Doesn't this mean, if I can't pay off the full catalogue amount but only part of it, that I'd be paying interest twice?

Or is my brain not working properly?!

Surely.
"Twice" doesn't mean "more".

E.g. 37% on £500 plus 27% on £500 is less than 37% on £1000.

SeduLOUs

I'd add that if you haven't yet applied for the card, look for one that has a 0% on purchases introductory offer, so that when you pay the bill with it there will be no interest on the bit you paid off for 6-12 months, giving you some time to clear it down.

Clear whatever is left on the catalogue account first.

CLAPTON

No, you only pay interest on the amount you owe

suppose you owe the catalogue £1000 then you will be paying
1000 x 36.9%/12 interest per month i.e. £30.75 per month in interest

if you were paying 29.87% APR then you would be paying
1000x29.7%/12 = £24.75 in interest per month

if say you transferred 600 from the catalogue to the CC
the you would pay 400 x 36.9%/12 interest on the catalogue
i.e. £12.30
plus 600 x 29.87%/12 = 14.94 on the cc per month
so a total of £27.34

Alibalibee

grumbler wrote: »

Surely.
"Twice" doesn't mean "more".

E.g. 37% on £500 plus 27% on £500 is less than 37% on £1000.

Thanks! You've just confirmed that, yes, my brain isn't working properly!

redux

On the other hand, if you used a credit card for some other spending like supermarkets etc, and paid it off in full each month, this would mean some borrowing without interest, and the cashflow advantage of the weeks gained might help reduce the catalogue balance.

For example, if you spend £200 a month on the new card, the card balance would be £300 to £350 in the second month by the time you pay the £200 on the first month statement. The average borrowing is about £250, and just using those few weeks free credit might help pay something like that once from your bank to the catalogue to cut interest.

Don't overdo it though by reducing the catalogue too much to start with and then run into interest on the card too.

Alibalibee

SeduLOUs wrote: »

I'd add that if you haven't yet applied for the card, look for one that has a 0% on purchases introductory offer.

I don't have a good enough credit score to be eligible for an 0% cards, unfortunately.

SeduLOUs

Alibalibee wrote: »

I don't have a good enough credit score to be eligible for an 0% cards, unfortunately.

Are you sure?

The Barclaycard Initial gives 6 months 0% on purchases, although the APR after that seems higher than the one you are applying for.

Saying that I got given Barclaycard Initial at 29.9% to start with, and they reduced APR for me and my partner (his to 21.9%!) after 6 months (by request, not automatically) so definitely worth a look.

Alibalibee

I applied for an Aqua card on the day I created this thread, and today it came through the post! I fully expected a rejection letter so I was delighted when the envelope felt a bit thicker than usual! It's only £600 credit and the rate is 29.71% but it's a start. I'm off to pay off £600 on my catalogue debt!
Thanks for the advice SeduLOUs, I'll give that a try in a few months!
:T:j:T:j:T:j:T:j:T

redux

Is the catalogue interest rate higher than the card?

If not, then just use the card to pay off a modest amount you definitely know you can clear when the card due date comes.

Also, find out what the statement date of the card will be, and do this payment to the catalogue a day or two after that. Then you'll have 50 to 56 days until the due date on the following statement.

Edit: oh sorry, I just read the OP, and the catalogue rate is higher.

Even so, it may still work out cheaper or at least a bit more flexible to go about it the way I said. Some interest at 36% and some at zero might be cheaper than 29% overall.

Nuttydj

redux wrote: »

Even so, it may still work out cheaper or at least a bit more flexible to go about it the way I said. Some interest at 36% and some at zero might be cheaper than 29% overall.

Agree with redux here though it depends on size of catalogue debt and monthly ability to pay.

Oh and just be careful not to put too much on the card and hit your limit