Think I made a mistake.

Jami74

I think I've made a bit of a mistake and not sure what the best thing to do is.

I have a £5k loan over 3 years with my bank at 6.69% APR which I have made four payments on so far. My hope was to apply for a 0% money transfer card in a couple of months time for as close to £4k as possible to pay off the loan.

I have a Sainsbury's credit card with a limit of £1500 which I use for groceries and pay in every month (direct debit for full amount). I got it just over a year ago as I had no credit history and for the nectar points.

I've recently had a promotion at work but there was a bit of a mess up with my wages which means I am owed five weeks pay. I am going to get this along with February's pay in three weeks time. I half expected problems (same thing happened last time) so in preparation I got a Tesco credit card 0% on purchases, £1400 limit. Have been paying more than the minimum and still using it. Balance is currently £1000.

When my pay comes in three weeks time, I will pay off the Tesco credit card in full. There will be enough money for that and all my monthly outgoings with about £500 left for my savings account. My plan was to then keep the balances low on both credit cards for the next couple of months and then apply for the money transfer card to pay off the loan.

However, I am getting dangerously close to needing to dip into the overdraft (have not used the overdraft for over six months) and I panicked a bit last night and applied for a money transfer card now. I have been accepted for £1600 over 18 months with a 3.99% fee. There doesn't seem to be much point in paying off the Tesco credit card now rather than in three weeks time because it is 0% anyway, and I'm not sure if it is worth money transferring £1500 towards the loan now. Would it be better to cancel it immediately, wait for my wages to pay everything off and get back on track and try again hoping for a higher rate in two or three months time?

Sorry it's long. Thank-you for any advice.

[Deleted User]

Keep the cards you have, use them to reduce the interest bearing loan as soon as you can. Then work on pay off the remaining balances, highest rate first.

When you apply for another card, aim for one with a lower rate, rather than a higher one. The lower the rate, the less interest you pay.

Jami74

Deleted_User wrote: »

Keep the cards you have, use them to reduce the interest bearing loan as soon as you can. Then work on pay off the remaining balances, highest rate first.

When you apply for another card, aim for one with a lower rate, rather than a higher one. The lower the rate, the less interest you pay.

Thanks. My plan is to stick with 0% cards. Just wished I'd waited a bit longer.

Terry_Towelling

You mention a savings account. Whilst it is good to have an emergency fund, there may be a case to review whether it is worth having a sum in savings (making very little interest) and a loan at 6.69%.

I'm not saying you should definitely liquidate all of your savings to pay down the loan because once you pay towards a loan you can't actually get the money back (you can with a credit card) and I don't know how much your savings are. Still, there may be a case to consider here.

Jami74

Terry_Towelling wrote: »

You mention a savings account.

It's a Natwest builder. If the account increases by £50 a month it pays 1.5%. As my income and outgoings vary across the month I transfer all of the excess into the savings account, making sure on the critical day to have £50 (and only £50) more than the previous month, and then transfer it back as I need it. I've only been doing it for six months, so this month on the critical day it'll need to have £300 in to earn the interest. My car is very old but runs fine, I'm hoping in six months time it'll pass the MOT with what is in that account.

I am only just getting to the stage where my income is exceeding my outgoings, and so far only by a tiny amount. If my wages hadn't been delayed I'd be feeling proud at this point with my credit card balances sitting in the savings account.

I want to overpay the loan but like you say, I can't get it back once I have. I'd like to get it all onto 0% credit cards asap because I think I can overpay by enough to shorten the term by more than a year but at the same time I don't want to tie myself up with too much in case my circumstances change.

Terry_Towelling

If you do manage to transfer your loan balance onto a 0% card, do make sure that the minimum monthly repayment required by that card provider is still affordable as it could be more than the loan repayments.

Also, the Savings Builder product may not be ideal for your needs. I used to have one but there are now so many other accounts offering the same rates (or better). For example, Marcus savings will currently give you 1.5% without having to do anything with the balance.

There are also high-interest current accounts that might be better for you. E.g. Nationwide FlexDirect (5% interest subject to certain requirements with a linked 5% regular saver that also allows easy access) or TSB Classic Plus (5% subject to T&Cs plus 2% regular saver)

Good luck in your new role at work.

biglugs

Terry_Towelling wrote: »

If you do manage to transfer your loan balance onto a 0% card, do make sure that the minimum monthly repayment required by that card provider is still affordable as it could be more than the loan repayments.

Also, the Savings Builder product may not be ideal for your needs. I used to have one but there are now so many other accounts offering the same rates (or better). For example, Marcus savings will currently give you 1.5% without having to do anything with the balance.

There are also high-interest current accounts that might be better for you. E.g. Nationwide FlexDirect (5% interest subject to certain requirements with a linked 5% regular saver that also allows easy access) or TSB Classic Plus (5% subject to T&Cs plus 2% regular saver)

Good luck in your new role at work.

Agreed about the Marcus account - set up in a few minutes, and pays 1.5% (although 0.15% of that is for the first 12 months only). I have one of these for spare cash and you can move money in and out of it in seconds.

Terry_Towelling

Another quick note on the Marcus account is that the only part of the rate that is guaranteed for 12 months is the 0.15% bonus (I believe). The underlying rate of 1.35% is variable and, in theory, could be altered much earlier.