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Advice re.borrowing

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Hi,

I’m looking to consolidate some debt and just wondering what would be best.

I have £4320 on an MBNA credit card which is 0% until July 2016. My aim is to settle this debt by January 2019 and I’m trying to be proactive in how best to clear it.

Option 1: Obtain a personal loan: To take advantage of a lower interest rate I was planning on borrowing £7500 at 3.5%, and immediately repaying the surplus amount – £3180. My question is this, would I continue to repay 3.5% interest on the remaining balance or the initial amount? Apologies, I know that’s probably a silly question.

Option 2: Balance transfer to another 0% Credit Card, for example, Barclaycard 0% 19 months, no fee. I’d be required to switch again for a similar deal, of course.

I understand option 2 would be cheaper, but it would be more the issue of making another payment on top of the minimum monthly amount that sells the option of a personal loan, as I know that come the end of the three years it will definitely have been paid off.

Would appreciate any thoughts and I hope I’ve explained my situation clearly. If not, please feel free to ask any further questions.

Comments

  • foxy-stoat
    foxy-stoat Posts: 6,879 Forumite
    Eighth Anniversary 1,000 Posts Name Dropper
    If you obtained a loan at the lowest rate of 3.5% you could repay as much as you like, the rate would not change.

    Your better of getting another 0% balance transfer when the time comes.
  • Candyapple
    Candyapple Posts: 3,384 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    Another factor to remember is, although the headline rate for a personal loan may be 3.5%, would you actually get it? Or would you be more likely to receive a higher rate?

    Don't forget that there are other companies ahead of Barclaycard that offer 0% fee. AA is 22 months, Tesco is 21 months, Halifax is 20 months etc.

    Also, assuming you went with Tesco and for argument's sake let's say you got a £5k limit. You clear your MBNA card with the balance transfer (95% of your limit) so it will look like this:

    Tesco owe: £4,320 (minimum payment = £43.20 = 1% of balance)

    So £4,320 divided by 36 months (3 years) = £120 per month. By the time the Tesco 21 months deal comes to an end, if you have been paying the minimum payment monthly plus the shortfall to make it up to £120 per month, you would have paid off £2,520 so your remaining debt would be £1,800 and you would still have 15 months to clear it. Which hopefully 0% deals will still be around then so just apply for another one when the time comes.

    I see the appeal of a loan and one payment coming out, however you need to sit down and work out the interest vs the cost of using no fees balance transfer cards properly.
    I'm a Board Guide on the Credit Cards, Loans, Credit Files & Ratings boards. I'm a volunteer to help the boards run smoothly, and I can move and merge threads there. Any views are mine and not the official line of moneysavingexpert.com
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