Debt juggling

CliveWeasel

Advice please regarding debt juggling:

A quick summary of my current position:
Following a spate of home improvements I have a couple of debts left over summarised as follows:
A 0% rate credit card holding around £5K which is almost at its limit, 30 months left of the interest free period, currently paying around £100 per month – this isn’t a problem, Its £2K I need to worry about in two years.
I also have a £10K debt in regards to a kitchen installation, which was 0% and pay nothing for 12 months. The 12 month period due to finish at the end of May, by which point it needs to have been paid in full, or it defaults to a 20%+ rate, totalling £24K in payments over five years.

Obviously I am looking to pay off the £10K this month, and have two options:

• Loan (probably Sainsburys Bank – 3.7% amounts to about £220 per month over 5 years
• I have a second interest free balance transfer credit card which I can get 12 months on, my limit on this is £16.5K.

Do I just go for the loan now, or shift the existing £10K onto the balance transfer card (using my third credit card – the one I use daily and pay off each month), to effectively “launder” the loan such that it is a balance transfer onto the interest free card.

The monthly repayments are manageable on either approach, and I get reasonably regular bonuses which can pay off £2K or more every six months or so.

Are there any complications in using the cards in this way – e.g. extra penalties other than the transfer fee, or any hidden perils which will affect a credit rating by going down this route – is there a preference for loan debt over credit card debt?

I hope that is clear.

rockm87

I wouldn't replace one debt with another.

I would definitely look at your statement of affairs, and see if you can make any overpayments to get rid of your debt asap.

You can always use the snowball calculator to see the best way to pay if all off. http://www.stoozing.com/calculator/snowball-calculator.php

CliveWeasel

What's the alternative? The £10K needs paying or it rises to £24K next month and I don't have the cash sitting around just now.


So given that replacing one debt with another is not only the only option, but the best regardless; which is the better method?

enjoyyourshoes

can you afford to pay off every month the two debts:-


£5K at £100 pm (dos that pay off full amount by end 0% period)


& potential new debt of


£10 K over 12 months


Only you can answer that.


If you can not guarantee this then look at alternative options

japmis

I would personally try and get everything on 0% credit cards and then cut them up and start using the YNAB software.

Everyone here will tell you borrowing to pay off debt is a road to nowhere good.

Pixie5740

Ordinarily I wouldn't advocate borrowing your way out of debt but £10k at 20% over 5 years is eye-watering so if it can be refinanced to make it cheaper then go for it.

Are you able to use your day to day credit card to pay the loan balance? Not all credit cards allow you to do this.

Have you put any money aside to repay this debt for the kitchen? If not how would you be able to repay a loan from your current budget? There's also no guarantee you'll get the headline rate from Sainsburys but you're offered something better than 20% APR it might be worth doing.

Your other credit card is something you should be thinking about now, not forgetting about for 2 years when you'll need to find £2k or start accumulating interest.

Silian

You shouldn't borrow your way out of debt UNLESS it will work out cheaper in the long run (and then you need to be careful that you don't borrow more). I don't think this is something you have to worry about as you know why you ran up some debts - it wasn't simply that you were spending more than you were earning. But do keep an eye on it, because you shouldn't have taken out that loan if you couldn't pay it off on time!

We had a similar situation (also kitchen). We were lucky enough that our bonuses were enough to cover it, but if it weren't I would have gone for the loan option.

I assume that your debt is through Hitachi Finance in which case you have to pay a 2.5 % charge to pay it off with a credit card. You then have to pay the transfer cost to the other credit card (ours would have been 3%).

Your credit rating will take a slight hit if you go the loan route (as you have a new account and a search on your file), but it should recover in a few months.

andyfromotley

Just beware, many people who say they have a very good credit limit have found it very hard to get anywhere near the headline rate with Sainsburys.

What is the fee on your balance transfer card? If its around 3% this isn't great for a one year period as of course you will have to do the same in 12 months. (and as a PP said possibly pay a 2.5% fee to the finance company) So either get the longest BT you can or look for a card with a low fee. I think TSB do one with a .25 fee for 12 months.

Of course any of the options you are considering are preferable to letting it convert to the 20% plus rate. Its just a case of crunching all of the numbers and doing it as cheaply as you can.

ConsumerWizkid

Easy, move it on to the credit card to avoid the 20% rate.

However you've got 30 months before the situation may come back around so prepare for that.