To Balance Transfer, or Not to Balance Transfer?

smjjam

Hi Everyone,

Apologies in advance for a long, mathsy post. Hopefully I've laid it out well enough so you can understand my dilemma. This is my first credit card and I haven't got anyone to ask, so I just want to check if I've worked this out correctly! 

I currently have a credit card balance of £4858 with Sainsbury's bank. The minimum monthly repayment is the greater of: 2.25% of the remaining balance OR the interest plus 1% of the remaining balance. The interest is 29.95% APR. 

The first £2523 I borrowed was at the start of a 12 month 0% interest period, which runs out next month. The remaining amount I borrowed was later on through a different 0% interest offer, so that portion of the debt will remain interest free for another year. I'm looking into getting a balance transfer card to shift the £2523 with, so I'll avoid paying interest on it.

So, if my maths is correct, if I do nothing and start to be charged interest for the £2523, this will equate to ~£103 next month.   

2.25% of the total credit card balance will be ~£109 next month

By my logic, I'll be charged £109pm next month, as it's the higher number of the two. (Please correct me if I'm wrong!)

NEXT PART

I've been pre-approved for a Barclay's balance transfer card with a credit limit of £1200, 12 months 0% interest and a minimum monthly repayment of 3.75%. I should hear back from them with a definite response over the next few days. They could very well still say no, but if they do accept me, I'm trying to work out if shifting part of my debt that I'm about to be charged interest on will actually be of any benefit, or if I should leave it as is. 

If Barclays accept me and I shift £1200, they will charge me £45 in the first month.

On my Sainsburys card, the new remaining balance will be £3658, meaning 2.25% of this will be ~£82 next month.

£1323 of the Sainsbury's debt I will still have to pay interest for, which would be ~£73 next month.

So, (if you're still with me!) The Barclays fees plus the highest Sainsbury's fees would total at ~£127 next month. Which to me, makes it look like making a balance transfer with the Barclay's card would actually work out to be more expensive overall, but that seems bizarre to me which is why I'm hoping for some second opinions.

But yeah, I've been looking at this for hours today and my ADHD dopamine supply has run dry so now I can't tell which way is up or down with this, so I need some backup! 

Thank you so much in advance!  

[Deleted User]

The BT isn't more expensive. It's cheaper, as there is no interest applied. It's just that the min payment is higher, meaning you clear the debt faster.

You won't know your limit until you're accepted, so you can more accurately work the numbers then.

Brie

Assuming Barclays accept you once you have got things in place ring them up and ask for an increase balance high enough to cover the cost of the whole amount you'd like to move plus the BT fee.

If you only have a balance available of £1200 you are unlikely to be able to BT more than maybe 90%.  So perhaps just £1080.  So to cover the £2523 you'll need a balance of at least £2800.

But if you don't do a transfer at all you will be paying interest on the £2523 at 29.95% which will cost you £111.55 in the first month.  But if you do manage to transfer £1080 with a 5%(?) fee you would owe Barclays a total of £1134.  This would mean you would need to pay Sainsburys £73.79 in the first month and Barclays £42.53.  So the total in month one would be 116.32.

This is higher in the first month but should drop quicker on subsequent months as the full £73.79 will go against the part of the dept with the highest interest.  If you continue to pay just the minimum then after 12 months you would still owe about £700 on the £2523 plus the rest of the balance would go to the higher interest rate as well.  

To make this work best is to decide how much you can afford to throw at the Sainsburys balance.  Leave the Barclays at the minimum for as long as you can.  But let's say you can afford £120 every single month for both cards.  Put everything above the minimum total repayment on the Sainsbury's card and that will reduce the balance with interest even faster and put you in a much better situation in a year from now.  Actually make life easy for yourself and put a minimum payment of £100 on the Sainsburys and £20 on the Barclays and then you won't have to think too much about it until you have some extra ££ in the bank which you would obviously also throw at Sainsburys.

Hope that makes sense.  Happy also to have someone to correct my calculations if required.  

smjjam

Hi Both 

Thank you so much for your answers! Super helpful.

The balance transfer fee for Barclay's is 0.9%, sorry I should have said. And that's a thing, you can ring the bank up and ask for a higher credit limit, I had no idea! I thought the limit they gave you was non-negotiable.

For the next 6 months or so I'm not going to be able to pay any more than the minimum payment on any credit cards as I have the balloon payment for my car coming up. I've put that as the top priority to put all my extra cash towards, which is why the minimum monthly payments for the credit cards will be good information to know.

Once the car payment is complete then my plan is to switch back to putting any spare cash towards paying off the credit card debt. 

[Deleted User]

£1200 is also a typically quoted representative balance figure, they may give you more (or less). I'd advise paying more than the minimum whatever you get, if you want to ask for an increase in say 6 months. Barclays usually offer me more BTs periodically, sometimes every month and sometimes not for a few so keep an eye on the app if you need more

joshua_29

I paid all my cards with high interest rate off before Christmas and kept the 2 small balance low rate cards but when i tried to find a % balance card to transfer them to iv found it impossible but why when my finances are better than they were for years??

[Deleted User]

Because lending is very tight currently and your risk is too high for the lenders you've tried.

Check your credit files to see what shape you're in. In the meantime, keep paying down as hard as you can.