Advice please: Credit Card vs Overdraft

lucilemcneil

Hi MSE community,

I'm about to go on a 3 week holiday to the USA and have saved up £1,500+ in spends for when I'm there. I've got a credit card with a limit of £1,500 but have a balance of £975 on it. I'm worried that if any emergency arrises I'll need a little bit more of a cushion that £525 on the credit card. I applied to raise my credit card limit by £1,000 but was turned down by my bank.

My question to you is - do you think I should increase my overdraft limit to £1,000 pay off my credit card and then use my credit card for emergencies when I'm there? My bank charges me £6 a month for my overdraft, whereas my credit card interest is £18 a month.

I just worry that I'll come back to 2 lots of debt (£1,000 overdraft and whatever I spend on the card), rather than one.

Any advice gratefully received

Thanks

grumbler

Well, if the overdraft really costs less than your CC interest you should have increased it to pay the CC off regardless of your trip.

With regard to "two lots of debt", I don't see anything to worry about. The only what matters is how much you owe in total and how much it costs you.

In fact, if you have saved £1.5K elsewhere, just use it to pay the CC debt (or overdraft) off. Then use the debit card (with increased overdraft limit) for spending and cash in USA (and, possibly, buying some $ in UK), and keep the empty CC for emergencies.

MSE: Repay Debts or Save?