Help me Run the Numbers please

Narola1976

Please can those who know more than me help me figure out whether this is a good idea:

I have just started snowballing. I have a total figure of £1004. I could up this to £1015, but no more at this stage. I have lots more debt but the two I am concerned about are the ones below.

I have been offered a BT from MBNA - 0% for 12 months, 5% fee. I know this is a big fee. The transfer offer is for £4559. The fee would be £227.95

I owe £8891.57 on HSBS at an eye watering 28.9%. Only £20 or so is coming off the balance due to the interest rate.  I want to use the transfer. But I do not know if this is a good idea. Notwithstanding the fact that I have done plenty of BT before and not learned my lesson, I am not sure I am to be trusted but all I want now is to consider it - to see what it would look like. I would like to think asking advice this time and not just running off and doing it shows a little more maturity. One can only hope.

So the figures:

Current MBNA Balance: £7995.25.         Current Min Payment : £202.51.     Interest 20.93%    
Current HSBC Balance : £8891.57.         Current Min Payment : £222.29.    Interest 28.9%

I think HSBC takes 2.5% of the balance and MBNA 1%.  But I am not sure how the minimum payment is calculated with the interest as well. I have searched for the formula on the internet but there only seem to be overpayment calculators. 

Currently, the 2 minimum payments total : £427.80
My rubbish math has worked out the new payment for both would be £427.86
But I don’t know if that’s correct or if it is worth taking the transfer mathematically I mean

I really need help figuring this out, please can someone give me advice. 

Edited to add : I know I will not be able to clear the 0% amount at the end of the 12 months. But my thinking is maybe its a case of having as much off the high interest one as possible, even if I still end up paying a lot to interest. Isn’t 20.93% better than 28.9%? 

mcpitman

Numbers rounded for ease, but if you move interest rates, you need to reset your snowballing.

I may be wrong but my understanding would be as below;
MBNA balance now = £8k, 1% payment = £80.
HSBC balance now = £9k, 2.5% payment = £225
Total balance = £17k, min pays = £305, you are currently paying £430 p/m (appears you are paying a higher amount to the lower interest card (MBNA), rather than higher interest card (HSBC).

So to swap balances;
MBNA balance = £12.75k (8k balance + 4.5k BT + 0.25k fee) = 1% min pay = £128
HSBC balance = £4.5k balance = 2.5% min pay = £113
Total balance = £17.25k (+0.25 due to BT fee), min pays = £240.

Even if my maths is wrong, the recommendation is to transfer what you can from HSBC, then pay min pay on MBNA and add anything extra to payments on HSBC to clear.

Narola1976

mcpitman said:

Numbers rounded for ease, but if you move interest rates, you need to reset your snowballing.

I may be wrong but my understanding would be as below;
MBNA balance now = £8k, 1% payment = £80.
HSBC balance now = £9k, 2.5% payment = £225
Total balance = £17k, min pays = £305, you are currently paying £430 p/m (appears you are paying a higher amount to the lower interest card (MBNA), rather than higher interest card (HSBC).

So to swap balances;
MBNA balance = £12.75k (8k balance + 4.5k BT + 0.25k fee) = 1% min pay = £128
HSBC balance = £4.5k balance = 2.5% min pay = £113
Total balance = £17.25k (+0.25 due to BT fee), min pays = £240.

Even if my maths is wrong, the recommendation is to transfer what you can from HSBC, then pay min pay on MBNA and add anything extra to payments on HSBC to clear.

@mcpitman apologies I forgot to say I am paying interest on MBNA at 20.93. So the minimum quoted above is the minimum required. I am not overpaying. So in effect I will still have circa £8k on 20.93% and £4559 at 0% for 12 months

Moneywhizz

it looks like you are paying 2.5% minimum payment on your MBNA card too. As mcpitman points out 1% of £8000 would only be £80 and you are paying £202. So you need to do your calculations based on that. I think the minimum payments would work out approximately the same. What you are interested in is how much interest it would save you over the year. Doing a very rough calculation it looks like you would be paying approx £1300 in interest on the £4550 that you would be transferring. Taking away the transfer fee £280 means you would still be making a saving of £1000. That is a good saving and worth doing, however only if you are sure you are going to stick to your payment plan and not be tempted to lower your payments. And who know you may get another BT offer and be able to save even more in interest. But you must be sure that you are now disciplined enough to stick to your plan. 

mcpitman

Narola1976 said:

mcpitman said:

Numbers rounded for ease, but if you move interest rates, you need to reset your snowballing.

I may be wrong but my understanding would be as below;
MBNA balance now = £8k, 1% payment = £80.
HSBC balance now = £9k, 2.5% payment = £225
Total balance = £17k, min pays = £305, you are currently paying £430 p/m (appears you are paying a higher amount to the lower interest card (MBNA), rather than higher interest card (HSBC).

So to swap balances;
MBNA balance = £12.75k (8k balance + 4.5k BT + 0.25k fee) = 1% min pay = £128
HSBC balance = £4.5k balance = 2.5% min pay = £113
Total balance = £17.25k (+0.25 due to BT fee), min pays = £240.

Even if my maths is wrong, the recommendation is to transfer what you can from HSBC, then pay min pay on MBNA and add anything extra to payments on HSBC to clear.

@mcpitman apologies I forgot to say I am paying interest on MBNA at 20.93. So the minimum quoted above is the minimum required. I am not overpaying. So in effect I will still have circa £8k on 20.93% and £4559 at 0% for 12 months

Thanks for coming back, sorry never carried and interest bearing amount on an MBNA card so have always paid 1% of outstanding balance.
Your min pay for MBNA must be 1% + interest or similar (statements will clarify).
1% of 8k = £80 plus the interest @ £140 p/m = total min pay = £220k.

Therefore - new payment on MBNA @ 12.5k balance = 1% (£125) + int on other balance (£140) = £265
HSBC = 2.5% = £4.5k @ 2.5% = £113
Total min pay = £378, currently paying £425. Keep MBNA @ £265 and pay £160 to HSBC

ryanm8655

The simple answer is yes, do it. 

You can reduce the credit limit on the HSBC if you’d be tempted to use it. Most of my cards I didn’t use but I reduced the credit limit on cards I did following balance transfers and closed them down when cleared.

Assuming you can afford it, my approach would be to do the balance transfer to HSBC. Reduce the credit limit by the £4500 (unless they might give you a balance transfer offer later? I’m not sure about HSBC) and set all payments to £1 above current minimum, except HSBC, which I’d keep paying the c.£220 on (or whatever you can afford to clear). Shifting debt to 0% makes a huge impact if you keep clearing it down.

Narola1976

Thank you both for taking the time to reply

You have helped me to realise that yes I am paying 1% to MBNA - I worked out that 1% plus interest is equal to the minimum amount. Sounds obvious but I just couldn’t figure it out!

Moneywhizz I believe that I will not make the same mistakes. I am confident that I will not drop below the £1004 which I am paying overall.  I also am sure I won’t use the credit card as I would be asking HSBC to reduce the limit. I would close the card if I could but I still have a balance so no choice. 

So, food for thought.  I shall sleep on this for the next week or so. One of my biggest flaws is impetuosity so I will just ponder this for another week or so. 

ryanm8655

Narola1976 said:

Thank you both for taking the time to reply

You have helped me to realise that yes I am paying 1% to MBNA - I worked out that 1% plus interest is equal to the minimum amount. Sounds obvious but I just couldn’t figure it out!

Moneywhizz I believe that I will not make the same mistakes. I am confident that I will not drop below the £1004 which I am paying overall.  I also am sure I won’t use the credit card as I would be asking HSBC to reduce the limit. I would close the card if I could but I still have a balance so no choice. 

So, food for thought.  I shall sleep on this for the next week or so. One of my biggest flaws is impetuosity so I will just ponder this for another week or so. 

What is there to think about? It’s a no brainer.

The only risk is you reckon up more debt on the HSBC but you’ve said you’ll reduce the limit. Besides, you can obviously still access credit if you want it, so that risk still exists if you don’t.

The sooner you do it, the sooner your debt starts reducing rather than just clearing interest. Then you can check back for more offers in a few months when you’ve made more of a dent.

You may even find you have access to several 0% cards (have you checked using the eligibility calculator?). 

mcpitman

Narola1976 said:

Thank you both for taking the time to reply

You have helped me to realise that yes I am paying 1% to MBNA - I worked out that 1% plus interest is equal to the minimum amount. Sounds obvious but I just couldn’t figure it out!

Moneywhizz I believe that I will not make the same mistakes. I am confident that I will not drop below the £1004 which I am paying overall.  I also am sure I won’t use the credit card as I would be asking HSBC to reduce the limit. I would close the card if I could but I still have a balance so no choice. 

So, food for thought.  I shall sleep on this for the next week or so. One of my biggest flaws is impetuosity so I will just ponder this for another week or so. 

As previous poster said "just do it", it will be cheaper from the day of transferring.

If you want some more analysis post an SOA on here (use lemonfool website and import to here) and see if anyone can help you pay off more quicker in anyway.

Also, as per previous poster, have you looked at eligibility for a new 0% card?, even moving some more of the HSBC to 0% (and poss some of interest bearing MBNA balance) to a new card will chip away at the cards even quicker.

Narola1976

ryanm8655 said:

Narola1976 said:

Thank you both for taking the time to reply

You have helped me to realise that yes I am paying 1% to MBNA - I worked out that 1% plus interest is equal to the minimum amount. Sounds obvious but I just couldn’t figure it out!

Moneywhizz I believe that I will not make the same mistakes. I am confident that I will not drop below the £1004 which I am paying overall.  I also am sure I won’t use the credit card as I would be asking HSBC to reduce the limit. I would close the card if I could but I still have a balance so no choice. 

So, food for thought.  I shall sleep on this for the next week or so. One of my biggest flaws is impetuosity so I will just ponder this for another week or so. 

What is there to think about? It’s a no brainer.

The only risk is you reckon up more debt on the HSBC but you’ve said you’ll reduce the limit. Besides, you can obviously still access credit if you want it, so that risk still exists if you don’t.

The sooner you do it, the sooner your debt starts reducing rather than just clearing interest. Then you can check back for more offers in a few months when you’ve made more of a dent.

You may even find you have access to several 0% cards (have you checked using the eligibility calculator?). 

Thanks @ryanm8655 I get what you are saying. Just fear holding me back I guess.  But I know I am not going to spend on the CC and I will reduce the limit so I suppose I should just take the chance and stay accountable here on these boards.  When I did eligibility about a week or so again, I had 0% chance on everything.  I think the MBNA offer is only because I already have a card with them. 

ryanm8655

Narola1976 said:

ryanm8655 said:

Narola1976 said:

Thank you both for taking the time to reply

You have helped me to realise that yes I am paying 1% to MBNA - I worked out that 1% plus interest is equal to the minimum amount. Sounds obvious but I just couldn’t figure it out!

Moneywhizz I believe that I will not make the same mistakes. I am confident that I will not drop below the £1004 which I am paying overall.  I also am sure I won’t use the credit card as I would be asking HSBC to reduce the limit. I would close the card if I could but I still have a balance so no choice. 

So, food for thought.  I shall sleep on this for the next week or so. One of my biggest flaws is impetuosity so I will just ponder this for another week or so. 

What is there to think about? It’s a no brainer.

The only risk is you reckon up more debt on the HSBC but you’ve said you’ll reduce the limit. Besides, you can obviously still access credit if you want it, so that risk still exists if you don’t.

The sooner you do it, the sooner your debt starts reducing rather than just clearing interest. Then you can check back for more offers in a few months when you’ve made more of a dent.

You may even find you have access to several 0% cards (have you checked using the eligibility calculator?). 

Thanks @ryanm8655 I get what you are saying. Just fear holding me back I guess.  But I know I am not going to spend on the CC and I will reduce the limit so I suppose I should just take the chance and stay accountable here on these boards.  When I did eligibility about a week or so again, I had 0% chance on everything.  I think the MBNA offer is only because I already have a card with them. 

Even more reason to do it now. That offer may well disappear.