Pay off credit cards or put money in savings?

Dutchie71

I bet you are already thinking 'pay off the credit cards' as I am currently doing, but here is my current situation. Total debt is less than £10,000 as follows -

Barclaycard £1700 @ 2.9% lifetime of balance transfer min pay £35 (£50)
M&S £4800 @ 4.9% lifetime of balance transfer min pay £120 (£270)
IF £2300 @ 4.9% lifetime of balance transfer min pay £50 (£250)

The figure in brackets are my current payments I make each month to reduce the debt. I never have used these credit cards for any purchases as that wouldn't be very clever now would it! (I have a Shell Citibank card which I pay off in full each month where I get 3% on shell fuel purchases and 1% cashback on all other purchases):j

I have had the Barclaycard 2.9% deal for at least 5 years now if not more and that had nearly £7000 of debt that I shifted onto it when I was offered this amazing deal. If there is good debt, surely this cannot be beaten. :T Barclaycard have tried every trick in the book to get me to use this card and failed , so I haven't rushed into paying this one off and have always just paid a fixed amount above the minimum payment. So here are my two questions -

1. Should I continue to pay these credit card off with the current set amount that is just about affordable, ensuring that M&S and IF get paid off before Barclaycard or should I just pay the minimum amounts on each credit card and put the difference of about £350, into a cash ISA to avoid income tax? I know that the maximum is £3000 for a mini cash ISA, but my wife and I can have one each right? I can get a 6% which is double the Barclaycard interest rate and 1% above the other two credit cards. Would this make financial sense over the long run?

2. Will Barclaycard charge me the standard rate of 19.9% on the interest charges they have applied to my debt over the 5+ years? As I come nearer to paying off the actual balance transfer, over the years they must have charged me several hundred pounds in interest charges, let's say for arguments sake £750, so that when I have only £750 left to pay off (So the actual balance transfer is paid off) will they charge me 19.9% on the remaining debt which is the interest they charged me over these years?:eek:

I have a sneaky suspicion that is what they will be doing without telling me in order for them to finally make some money out of this deal, as I am sure that they have lost out by me playing at their own game and getting the best out of this 2.9% deal. If so, when it does come to that stage, I either pay it off in one lump sum or transfer the remaining amount to a 0% deal. I am keeping my eye on the amount of interest I pay each month, which is currently less than £4.50 per month on a debt of £1700.:T

itsnever2lateisit?

You need to look at the T&C's of Barclaycard to find the order in which your payments are allocated to the outstanding balance. At a guess it pays off interst 1st, then purchases, then finally the transferred balances. If that is the case then you are paying off the interest as you go.

I would stooze on an ISA if I were you. Remember the limit rises from April to £3600 pa, and yes that is per person

PBA

As long as you can get a better deal on savings than 4.9% then you should pay as little as possible on the cards and put the rest into savings. Not only are you profiting on the difference in interest, but it means that you've got cash available should you need it, rather than having to apply for new loans, which at the moment wouldn't be anywhere near as good as 4.9%.

Dutchie71

itsnever2lateisit? wrote: »

I would stooze on an ISA if I were you. Remember the limit rises from April to £3600 pa, and yes that is per person

I thought stoozing was getting a new 0% credit card and putting the money into an ISA to earn the interest and I don't have a big lump sum to put into an ISA as I have existing debts. As Martin says in his stoozing article -

"...Those who already have debts on plastic should use all available new credit to reduce the interest on current debt."

So, should I reduce my current debt on the plastic or only pay minimum payments and start putting some money into an ISA? Remember I will put away £350 per month, so that is £4200 per year, whereas my total debt will be roughly £7000 after the first year, so surely I paid more interest on the debt than what I earned through my savings. So, I reckon that after 18 months, I will then be in a stoozing position when my savings match the low cost debt roughly at £6300. If I were to continue those payments into my savings account, the longer I have the debt, the more money I make from the interest of the savings that will offset the interest on my debt.

For example, how much can I make in 10 years when on the Barclaycard I will have just £226.14 left and if I just put in a £100 per month in an ISA that will be worth £12000 plus all that compound interest of 5% per year (for illustration purposes the average interest rate over 10 years), but I am only paying the debt off at 2.9%. When I put it in the stoozing calculator, it comes up with the following -

Total interest earnt in 120 months: £1,089.92 (That's £1,362.39 gross).
Total interest paid in 120 months: £210.14.
After paying a total of £1,684.00 in minimum payments, you'll need to clear the balance of £226.14
This will leave you with £2,563.78 in your savings account

But this doesn't account for the £100 that I put into an ISA every month and automatically assumes that I already have the £1700 in an ISA account. Can anyone help me or does anyone know of a calculator that will be able to work out what I can earn by using my debt to my advantage or am I just barking mad and I have got this stoozing all wrong!

Dutchie71

PBA wrote: »

As long as you can get a better deal on savings than 4.9% then you should pay as little as possible on the cards and put the rest into savings. Not only are you profiting on the difference in interest, but it means that you've got cash available should you need it, rather than having to apply for new loans, which at the moment wouldn't be anywhere near as good as 4.9%.

So I am not barking mad then! As long as the interest stays above 4.9%, I am making money on my debt. Can anyone tell me how much, is it worth doing this? When will I make my break even point and how much can I make on it doing it for ten years?

sicker

My opinion is that I would pay min. to Barclaycard, min. to M&S and max. to If thus clearing If in 6 months. Next I would target M&S thus clearing that in a further 8 months. You now will have the funds available to clear Barclaycard in the next 3 months. No more repayments so you are now able to save over £570 per month. Clear of debt in less than 18 months (sounds a long time but worth it) you can now open an on-line savings account at hopefully about 6%.

John