Is a credit card the best idea

first78

Okay so I'm currently £1800 overdrawn and due to a recent bereavement in the family I've just added another £1200 worth of debt to this.

I'm now wondering whether it will be best to get a credit card and use it to pay off my overdraft. Looking at MBNA they do one which is 28 months 0% that would allow me to pay off the overdraft. Is this a good idea or are there other options I should explore first?

[Deleted User]

Does it offer money transfers? You'll need it for an OD.

onlyfoolsandparking

There are always options but a money transfer card would probably be your best one. Overdrafts are usually as expensive as a 'full rate' (not on a promotional deal) credit card so do an eligibility check and look specifically for 'money transfer' card, these are cards which allow you to pay funds into your account then you owe the card.

first78

https://www.money.co.uk/credit-cards/0-money-transfer-credit-cards.htm

I'm looking at the MBNA one. I've never used a CC for a money transfer before. Please could someone advise me how you do the transfer?

Willing2Learn

It is simple

You just do a transfer, direct from the credit card to your chosen current account.

Don't forget that there is a small fee for a money transfer (even though the APR is 0%). If it were me, I would be going for a card with the lowest fee (although maybe you need one with the longest duration instead)

first78

Willing2Learn wrote: »

It is simple

You just do a transfer, direct from the credit card to your chosen current account.

Don't forget that there is a small fee for a money transfer (even though the APR is 0%). If it were me, I would be going for a card with the lowest fee (although maybe you need one with the longest duration instead)

So once I get the card do I call them and ask them to transfer X amount to my bank account? The fee is 4% ...so that wouldn't be too much if I want to transfer £3k.

MallyGirl

yes it it that simple - you give them the sort code and account number, they make the payment to your account and then you just keep up the minimum payments until just before the 0% runs out. At that point you hopefully have the funds to pay the balance off

Jami74

first78 wrote: »

I'm now wondering whether it will be best to get a credit card and use it to pay off my overdraft. Looking at MBNA they do one which is 28 months 0% that would allow me to pay off the overdraft. Is this a good idea or are there other options I should explore first?

I did exactly that. Opened the account and did the transfer online. I don't use the card for anything else, it's locked away, I treat it like it's an interest free loan. I've set up a direct debit to pay the minimum payment each month so there's never going to be any problems missing a payment (they can withdraw the 0% if you pay late) and pay extra each month depending on my overtime with the aim of paying it off before the 0% interest ends.

The challenge is to never go back into the overdraft, I can see it would be easy to make minimum payments on the credit card and slide slowly back into the overdraft.

Terry_Towelling

You cannot guarantee that you will get a high enough credit limit to cover all of the debt and 4% does sound quite a steep fee although it will still probably be cheaper than the overdraft fees. You should also check the minimum payment calculation on the card. This could be anywhere between 1% and 2.25% of the outstanding balance each month.

If you get enough credit to cover the £3K (and a 4% fee) you may have a minimum payment anywhere between £31.20 (1%) and £70.20 (2.25%) in the first month. Obviously the minimum payment will reduce each month as the balance reduces.

You already have a sizeable overdraft and I fear it was proving difficult to reduce. Although you may have no choice now, taking the Money Transfer route, will require discipline. You must always pay at least the minimum requested before the due date, or you may be hit with a late payment fee and lose the 0% rate.

I've done some rough calculations to give you some idea of where you will be after 28 months on a debt of £3120 at 0% with various repayments.

Always paying the reducing balance at a 1% minimum will leave £2350 still left to pay
Always paying the reducing balance at a 2.25% minimum will leave £1650 still to pay.

Paying about £112 per month will completely clear the debt in the promotional period but, if you can't stretch to that, you may be able to get a 0% Balance Transfer card nearer the end of the promotional period and switch the debt to that.

Take care and best of luck.