Overdraft to Pay Off Credit Cards

EssexHebridean

sms1984 wrote: »

Thanks everyone for your replies so far. I'm the partner that has run up debt. I've figured out my budget and debts and arranging paying this off using a snowball method/calculator which I found online. I have several different debts and as a result my credit score is low and i am not accepted for any 0% or low rate balance transfers. My bank however can give me an overdraft of up to £2500 and the question is if this will be cheaper in the long run to pay off those two debts with the overdraft or if its best to stick with paying them off as they are. I think it's slightly cheaper and every little helps. Due to my being silly with money though i have admitted my debt to my partner and agreed not to get any further credit without consulting him further and he's just trying to make sense of something we both don't fully understand.
For info, my credit cards have been cut up and i will not be getting further in debt. My head which was previously buried in the sand regarding my debts has been pulled out and facing them head on!

Full marks to you for coming on and posting - that must have taken some guts!

Personally I'd say look to reduce the amount of interest you'll pay by rustling up every spare penny you can to throw at the debt rather than by shifting it to an OD. The people who've pointed out the uncertainty are absolutely right, but there is another reasons too - once you have that level of OD in place temptation will be right there to continue to use it - and until you get your spending habits not only changed, but also tried and tested, you may well do better to avoid having an OD option at all.

Have a think about any ways you can make any extra cash too - even things like surveys can help, they'll never make you a fortune but even an extra £20 a month will help to bring the totals down.

sms1984

Thanks for your kind comment EssexHebridean. Am doing my best to scrape together the pennies. Selling everything I don't need, taking up offers of overtime and applying for a second job on a casual basis to help out. Hopefully it'll all add up and make the difference. And now I have my boyfriend on board he's helping loads. We've discovered Lidl for our shopping and cutting back and saving £100 each a month.

Thanks again everyone else too. I think we've decided an overdraft isn't a great idea despite being able to potentially save a little bit of money. Doesn't seem worth the risk.

clairebeth

Yay, Lidl is definitely the best for groceries! And meal planning saves loads of money!

I agree, the overdraft is just a temptation whereas by cutting up your cards you've stopped any further spending with borrowed money and can focus on paying it off.

Do try and get a balance transfer, even if you can't get 0%, you might get 7% or something, which is still better than what you're on now. And you've totally done the right thing by working out your snowball! Good luck!

ani*fan

I previously shifted some debt to my 0% overdraft and found it helped massively with debt repayment. As long as the bank see your wage going into the account it is unlikely they will ask for it back so suddenly. That happened to me once on an old account that I had stopped using, so I kind of anticipated it.

Saying that, there is not really enough of a difference in interest rate between your credit cards and overdraft to make this worth your while. The difference is only £50, and actually less than that as if you paid it off the 2 cards over a year, your interest which is added monthly would reduce as the year went on. You could really use a lower interest rate to help you out. Is there a family member or someone who could help you? I agree that getting your partner to take out credit in your name is not a good plan.

I got the same numbers as you regarding how much interest would be paid, so I don't know why that doesn't match the bank's calculations. You could always ask them? Banks are often a mystery to me!

These debts seem quite small but I am I right in that they are part of a bigger picture? If so, then I'd take the advice offered previously and get your soa posted up here. You need to free up as much cash as you can to pay these down and once that starts, you will get some 0% deals.

Best of luck.

enthusiasticsaver

Your maths is incorrect on the interest charged on the credit card debt. You have assumed that the interest is £195 roughly on both debts for one years interest on each. This assumes however that you make no monthly payments as you have calculated a full years interest on the whole balance.

The best way of looking at it is that at the highest point the interest on month 1 for each card is £16 approx so £32 in total. To repay it within 12 months you will need to pay £112 of the capital each month plus the interest from the previous month. The interest will reduce by around £2.80 each month so month 1 £32, month 2 £29 and so on. I calculate very approximately £190 over the year for the whole debt by paying roughly £140 per month on the credit cards. The difficulty with using an overdraft is it is very easy to be undisciplined in paying it off as you have a limit you can go up to. This means you may not commit to bringing it down each month by £140 and prolonging the debt will increase the amount of interest charged plus of course the overdraft fees.

binaryuniverse

If your bank are offering you a £2500 overdraft, that's a possible sign your credit rating isn't completely shot.

I'd recommend you look at this
Capital One 6 months 0% Balance Transfers (3% fee)

I've been accepted for this card twice before, even with a low credit rating. Put both cards on that, and pay off as much as you can in the 6 month period. It's possible you may not get the full £1500 limit but you can still shift as much as possible to it, then pay off the rest of the debt that is gaining interest.

Before the offer period ends, and you get hit with a ridiculous 34.9% interest rate, call up Barclaycard (or Nationwide) and see if they can give you an existing customer offer. You may then be able to shift the debt back to the Barclaycard at a reduced rate than it was at before.

zippygeorgeandben

You are stronger, together.
That's my input!