Can I borrow from card at 0% to pay off debt on same card?

kopicbloodaxe

Hi,

Let me explain. I rather foolishly paid the deposit for a car purchase straight on my credit card. In hindsight, I should have used the 0% bank transfer offer to withdraw the money to my current account and then paid the deposit from there. But here I am. I still have the withdrawal offer open to me and the remaining credit on the card would cover paying off the car deposit part.

My question is - is it a financially viable option to use the withdrawal to pay off the car deposit? I know in the past that subsequent repayments always paid off the lowest interest debt first, but did that change?

Say I paid £5000 deposit for car (at hideous levels of APR) and I then withdraw £5000 at 0% and then turn it around to pay off a chunk of the card balance - would that work in my favour?

Thank you!

--Simon.

CliveOfIndia

This would work.  Assuming, of course, that you have enough room on the card to temporarily hold the additional £5000 balance.  And there's usually a fee for doing a money transfer, so you'd need to factor that in as well.

kopicbloodaxe said:

I know in the past that subsequent repayments always paid off the lowest interest debt first, but did that change?

Any payments are allocated to the highest-rate debt first, it's been that way for many years now.

Do remember that you'll need to clear the balance before the promotional rate expires, otherwise you're back to square one.  You may potentially be able to transfer any remaining balance to another 0% card, but in the current climate I wouldn't bank on being able to do so.

kopicbloodaxe

Thanks! I thought it would work but wanted a sanity check. I've not had to think about this sort of thing for a few years now - fortunately!

Brie

Use the card to do a money transfer to a bank account.  It will cost a bit more than the £5k due to the fee you will be charged. Set up a DD to clear the monthly minimum payment required.   

Wait until you get the statement showing the payment due for the purchase.  Clear the payment the day after the DD is taken as this is likely when interest will start to be charged.  Up to that point there is no difference to some CCs as to which portion of the balance any payment goes against so many CCs try to allocate any payment to the money transfer rather than purchases.  Do be sure to check the next month's statement as well to ensure that it is the MT that remains and not the purchase.  If it is the purchase then you need to ring the CC company immediately and complain that they have not followed their own (& the industry) T&Cs about applying payments to the portion of the balance accruing the highest interest.  Some customer service people will not understand what you are talking about so use the words "financially disadvantaged" and "complaint" to ensure they get the point.  Do check the next statement as well to ensure things have gone according to plan.....  (rinse and repeat)

elasto

I want to reiterate what Brie just said cos it's really important:

After withdrawing the MT, don't make the card payment too quickly!

Otherwise, as Brie says, it's entirely possible that they will use the repayment to clear the MT not the purchase - leaving you exactly where you are now except for having given them a fat MT fee for nothing...

MrFrugalFever

Firstly, you’ve just gained S.75 protection (providing car is under £30,000) so that’s good. 

Second, providing you can effectively double your spend with your limit and accommodate the fee without going over credit limit (I.e £1k becomes £2k + MT fee), then you can pay it immediately back to the credit card which will turn your balance in to 0%.

Double check your statement for allocation of interest but all CC’s I’ve come across within the last few years all allocate each payment to highest interest bearing balance first.

Once you’ve completed the MT, try not to make any purchases on that CC if possible, that way you can focus on getting it down to £0 and start with a blank canvas as it were.

paul_c123

"Allocation of payments"

Check that purchases are paid off sooner than money transfers. Also, check where unstatemented purchases fall, in the allocation of payments. If you pay the car first then do the MT you should be okay; but if you did the MT first then paid for the car.....you would need to wait for the car purchase to be statemented.

Fingerbobs

Wouldn't a safer strategy be to wait until a statement is produced showing the purchase, then execute the MT and use the MT funds to clear the statement in full? Shouldn't be any interest payable on the purchase if the entire statement balance is paid? Or have I misunderstood something?

kopicbloodaxe

I've put the bulk of the money transfer into an investment account until I get the statement through. At which point it will all go into reverse :-D 

Thanks for all other suggestions, as well.

paul_c123

Fingerbobs said:

Wouldn't a safer strategy be to wait until a statement is produced showing the purchase, then execute the MT and use the MT funds to clear the statement in full? Shouldn't be any interest payable on the purchase if the entire statement balance is paid? Or have I misunderstood something?

Yeah that's the best strategy, definitely wait for a statement to be produced, THEN do the MT using the remaining available credit. Purchases are interest-free (interest waived) "if the statement balance is paid in full, by the due date". You don't want the MT to be on that statement!!! 

MrFrugalFever

paul_c123 said:

Fingerbobs said:

Wouldn't a safer strategy be to wait until a statement is produced showing the purchase, then execute the MT and use the MT funds to clear the statement in full? Shouldn't be any interest payable on the purchase if the entire statement balance is paid? Or have I misunderstood something?

Yeah that's the best strategy, definitely wait for a statement to be produced, THEN do the MT using the remaining available credit. Purchases are interest-free (interest waived) "if the statement balance is paid in full, by the due date". You don't want the MT to be on that statement!!! 

But the MT is 0% so what’s your point here?