Reducing 5% Interest from my Parents

Voyager2002

2bak860 wrote: »

Thanks Clapton,

I guess I don't really understand putting normal spending on a purchase credit card 0%. I use my purchases cc to help with cash flow - for example using on holiday, then paying off over time.

How does buying my groceries on a 0% purchase credit card differ to paying on my current account? Is there a credit trick I'm not aware of?

thanks!

Yes: do a search for "slow stoozing".

Owing money to your parents is very different from being in debt to a card: if anything unexpected happens or if you can't clear the debt by the end of the fixed-interest period, debt to a card can turn extremely nasty. Five per cent is a reasonable amount of interest, bearing in mind that they cannot really use the unpleasant ways of applying pressure to pay that would be standard for a commercial lender. All in all, I don't think that refinancing this debt is a good idea.

LplateSaver

2bak860 wrote: »

Thanks Clapton,

I guess I don't really understand putting normal spending on a purchase credit card 0%. I use my purchases cc to help with cash flow - for example using on holiday, then paying off over time.

How does buying my groceries on a 0% purchase credit card differ to paying on my current account? Is there a credit trick I'm not aware of?

thanks!

You're paying your parents £100 a month right? Because presumably that's all you have spare?

But your groceries/petrol/everything on a 0% card and you'll have what £300+ extra a month spare? Give that to your parents, that will pay off your debt to them a lot quicker and mean you have less interest to pay them. You'll save money doing that.

plunt

well if you get a 0% purchase card (say from halifax of santander) you get between 18-24 months to repay what ever you have spent on the card.. with no interest. all you end up having to do is pay the minimum repayment each month (usually the higher of 1% or £5)

so say you spend a couple hundred each month on groceries, pub sessions etc, you then have that free cashflow of a couple hundred each month in your current account, where as it accrues as debt on the credit card. you can then pay down the loan to your parents with that. just make sure you can pay off the credit card at the end of the 19 months or so.

Alternatively after you have built up the debt on your credit card and the time approaches when you 0% period ends, you can find a balance transfer credit card (eg tesco/santander/couple others) which offer 0% balance transfers. you can now move your balance on the purchase credit card to the new credit card at 0% for x amount of months. all the while making the minimum repayments (or they take away your 0% deal!!)

keep in mind only do this to manage your cashflows and keep trying to pay down the credit card debt when you can. if you get to the end of the 0% offer period and havent moved it they you will end up reverting to interest rates of over over 20%!

If you find that doing this you have managed to pay off the loan with your parents you can then save this extra month into savings or current accounts and earn interest, which further helps to pay down the credit card debt at a later stage!

2bak860

Thanks all - understood now. Paying groceries on a 0% purchase credit card will increase debt there, but free up cash in my current account to pay parents and cut down 5%.

Understand the method now - thank you.

I've started using MoneyDashboard.co.uk - after a couple of months I'll have a real grasp of how much cash I can throw at it. For now, I'll just focus on increasing my repayments - 5% no risk isn't that bad.

thank you MSEers!

andyfromotley

Unless your dad is one of the Kray twins you would be crackers to transfer this lending elsewhere!

5% is fine. Is it the cheapest on the market. No. Will your mum and dad sell your debt to a crappy debt collection agency if you lose your job? Will they take a CCJ against you of you end up in hospital for an extended time? Etc Etc, you get the idea. I think this one would be a saving too far for me. (over 3 years the savings between your current loan and the market leading 3.4% is only £250.

Also there is no guarantee that you will get the headline rate, or anywhere near it.

SuperHan

Plus, they're your parents. They helped you out. Wouldn't you rather 5% interest go to them and improve their lives than 3.6% going to the shareholders of Sainsbury's?

Paul_1977

Your parents charge you interest.

Can't say I would expect that.

eskbanker

Paul_1977 wrote: »

Your parents charge you interest.

Can't say I would expect that.

Depending on their motives, it doesn't seem unreasonable as a principle as part of a financial education, although that would be more relevant if OP was, say, 18 rather than, say, 35 at the time!

Depending on how long ago the loan was made, it may be worth gently trying a bit of renegotiation, along the lines of "I agreed to pay that interest at the time and will continue to honour that, but you might like to consider the reduction in interest rates since then, i.e. what you'd earn on that money elsewhere"?

ViolaLass

Paul_1977 wrote: »

Your parents charge you interest.

Can't say I would expect that.

I charge interest when I lend - I figure I'm helping someone out, the least they can do is replace the interest that money would otherwise have earned so that I don't lose out.

SuperHan

Paul_1977 wrote: »

Your parents charge you interest.

Can't say I would expect that.

I pay interest on the money I've lent from the in-laws. I pay what they would have got if they had kept the money in their interest bearing accounts. It's only right that they're not worse off for helping me out.