Credit card or longer loan. How do I calculate balance?

goldygash

Hi

I’m trying to work out what would cost me less in interest from the following options:
I have £15k left to pay on a credit card 0% deal that is coming to an end.  I have another card that I can balance transfer to with an offer of 5.9% over 2 years.

i know I won’t be able to clear that amount in 2 years and could pay £300 per month.  I would then need to move that balance to another deal and start the cycle again.  How can I work out what the balance would be at the end of the 2 years?

My other option is to take out a loan over 5 years at 6.7%, where I would be able to pay off the full amount over that time, but would the overall interest on this be more than the multi stage approach above?

Thanks in advance

born_again

If you go the loan route, then don't forget to close the cards. So there is not temptation to use them & end up with more debt 👍

grumpy_codger

goldygash said:

I’m trying to work out what would cost me less in interest from the following options:
I have £15k left to pay on a credit card 0% deal that is coming to an end.  I have another card that I can balance transfer to with an offer of 5.9% over 2 years.

i know I won’t be able to clear that amount in 2 years and could pay £300 per month.  I would then need to move that balance to another deal and start the cycle again.  How can I work out what the balance would be at the end of the 2 years?

My other option is to take out a loan over 5 years at 6.7%, where I would be able to pay off the full amount over that time, but would the overall interest on this be more than the multi stage approach above?

Well, monthly payments for £15K, 6.7% and 5 years are £294 - https://www.moneysavingexpert.com/loans/personal-loan-calculator/
Unless I misunderstand something,  borrowint at 5.9% and repaying £300 p.m. is obviously cheaper than borrowing at 6.7% and repaying £294.
The total interest will be smaller and the debt will be paid off earlier.

ETA: not sure why you want to know the CC balance in 2 years, but if    you really need the figure you can use e.g. this calculator - https://www.themoneycalculator.com/loans/calculators/loan-balance-calculator/#!/dealfinder/loans/
Enter "Loan Start Month/Year" two years ago from today.

Brie

Will you be able to get a loan for £15k?  The bank will assume that you have the ability to pay both the loan and the CC which may still be maxed out?  I know you say you will use the loan to clear the card but there is no guarantee that you will actually do that. 

So can you service a debt of £30k, half of which will be at 28% or similar.  Oh and plus if you have maxed out your other card as well!  presumably you have a limit of at least £15k on that as well so we're talking about you being able to afford to have £45k worth of debt.

But as to (approximate) numbers....

If you BT to the other CC at 5.9% and pay £300 a month after 2 years you'll still have about £9250 of debt and have paid about £1451 in interest which forms part of the total of £7200 you will have paid.

If you get a loan at 6.7% and pay £300 after 2 years you'll still have about £9460 of debt and have paid about £1662 interest.  If you only pay £294 as grumpy has suggested you'll have £9616 of debt and paid £1672 interest which forms part of the £7056 you've paid.  

So the CC route is cheaper in the first 2 years.  After that you have no idea what you will be charged.

The higher interest on the loan over 5 years will be more expensive but at least you will know what's happening with that.  But you also have the temptation of running up even more debt on your cards if you are leaving them open.   Quite dangerous.  (been there, done that!!)

If you pop over to the debt free wannabee board there will be more advice but I know that everyone will say that taking out a loan to pay off a credit card is rarely a good idea.

goldygash

Brie said:

Will you be able to get a loan for £15k?  The bank will assume that you have the ability to pay both the loan and the CC which may still be maxed out?  I know you say you will use the loan to clear the card but there is no guarantee that you will actually do that. 

So can you service a debt of £30k, half of which will be at 28% or similar.  Oh and plus if you have maxed out your other card as well!  presumably you have a limit of at least £15k on that as well so we're talking about you being able to afford to have £45k worth of debt.

But as to (approximate) numbers....

If you BT to the other CC at 5.9% and pay £300 a month after 2 years you'll still have about £9250 of debt and have paid about £1451 in interest which forms part of the total of £7200 you will have paid.

If you get a loan at 6.7% and pay £300 after 2 years you'll still have about £9460 of debt and have paid about £1662 interest.  If you only pay £294 as grumpy has suggested you'll have £9616 of debt and paid £1672 interest which forms part of the £7056 you've paid.  

So the CC route is cheaper in the first 2 years.  After that you have no idea what you will be charged.

The higher interest on the loan over 5 years will be more expensive but at least you will know what's happening with that.  But you also have the temptation of running up even more debt on your cards if you are leaving them open.   Quite dangerous.  (been there, done that!!)

If you pop over to the debt free wannabee board there will be more advice but I know that everyone will say that taking out a loan to pay off a credit card is rarely a good idea.

Thanks to both you and ‘Grumpy’. This has been really really helpful. Plan is to be debt free in 5 years, so this is purely a replace and reduce rather than add, but I just couldn’t get my head around the interest if I wasn’t paying off all of the debt for the 2 year deal.  Have already been accepted for a loan for the £15k. Thanks again

Nasqueron

goldygash said:

Brie said:

Will you be able to get a loan for £15k?  The bank will assume that you have the ability to pay both the loan and the CC which may still be maxed out?  I know you say you will use the loan to clear the card but there is no guarantee that you will actually do that. 

So can you service a debt of £30k, half of which will be at 28% or similar.  Oh and plus if you have maxed out your other card as well!  presumably you have a limit of at least £15k on that as well so we're talking about you being able to afford to have £45k worth of debt.

But as to (approximate) numbers....

If you BT to the other CC at 5.9% and pay £300 a month after 2 years you'll still have about £9250 of debt and have paid about £1451 in interest which forms part of the total of £7200 you will have paid.

If you get a loan at 6.7% and pay £300 after 2 years you'll still have about £9460 of debt and have paid about £1662 interest.  If you only pay £294 as grumpy has suggested you'll have £9616 of debt and paid £1672 interest which forms part of the £7056 you've paid.  

So the CC route is cheaper in the first 2 years.  After that you have no idea what you will be charged.

The higher interest on the loan over 5 years will be more expensive but at least you will know what's happening with that.  But you also have the temptation of running up even more debt on your cards if you are leaving them open.   Quite dangerous.  (been there, done that!!)

If you pop over to the debt free wannabee board there will be more advice but I know that everyone will say that taking out a loan to pay off a credit card is rarely a good idea.

Thanks to both you and ‘Grumpy’. This has been really really helpful. Plan is to be debt free in 5 years, so this is purely a replace and reduce rather than add, but I just couldn’t get my head around the interest if I wasn’t paying off all of the debt for the 2 year deal.  Have already been accepted for a loan for the £15k. Thanks again

Accepted as in you did a credit application/hard search or just had a provisional confirmation subject to a credit check?