Best way to clear overdraft

bri123

Could somebody tell me the cheapest way to clear my overdraft. Im £2000 overdrawn (have been for past three years) and get charged about £20 a month interest and want to clear it with about £3000. I have no credit cards and have a good credit rating. Should i get a credit card or a loan if so which card. I can afford repayments of about £150 a month and i bank with barclays.

thanx

NickX

You need to get a SBT (Super Balance Transfer) card such as Egg or one adminstered by MBNA (for example Virgin). These cards will allow you to transfer funds direct to your Current Account and pay off your overdraft. Hope this helps.

bri123

Could you tell me what SBT is, i don't know anything about credit cards as ive never wanted one before,

thanks

NickX

BT = Balance Transfer

This is a transfer of funds to another Credit Card to pay off that debt and move the balance to a different card

SBT = Super Balance Transfer

This is a transfer of funds to a Bank Account, so you actually get the cash rather than paying off an existing debt. Once the funds are in your Bank Account you can pay off whoever you want, hence much more powerful than a standard Balance Transfer.

Both usually incur a fee generally 2.5% - 3%.

bri123

Thanks for the reply,

Would this be better than getting a loan of 3000 with an apr of say 6.9%.

Bokkens

SBT is a phrase that Martin coined but the credit card companies don't call it by that name so don't ask for one as they won't know what you mean.
They use the term balance transfer as NickX said MBNA Virgin,A&L,MINT,ABBEY EGG allow this BT to your bank account all other cards only do Card to Card transfers.

bri123

Ive applied for a virgin card, havent got a clue what the small print means in english but im assuming i can transfer money to my bank account and not pay interest on this for the first 15 months only the 2.5 - 3 % fee hopefully it will be paid off by then.

Thanks

NickX

Well the Credit Card route is cheaper than getting a loan of around 6.9% - I think Alliance and Leicester are offering 6.8% right now.

With the Credit Card route you are paying 3% fee for an interest free deal for about 12 months, so its less than half the cost.

However, the drawback is that you need to plan for how you will handle the debt once the promotional rate expires. You may well need to get another card ready before the expiry date to move the debt on again. This is going to be more hassle than having a loan which will simply continue until its paid off. It all depends on how good you are with paperwork and financial planning.

There is also the (slim) possibility that 0% deals won't be around in a year or so, so you cannot move the debt on.

Also don't forget some cards offer a LOB (Life of Balance) deal, usually around 6% which could be a better bet than a straight forward loan, and once again you don't have to worry about moving it on at a later date.

NickX

bri123 wrote: »

Ive applied for a virgin card, havent got a clue what the small print means in english but im assuming i can transfer money to my bank account and not pay interest on this for the first 15 months only the 2.5 - 3 % fee hopefully it will be paid off by then.

Thanks

Yes you can transfer the money to your Bank Account, although you have to ask them, they don't go out of their way to offer this facility.

And yes you should just pay the fee for 15 months of interest free credit. If you reckon you can pay it all off in the 15 month period, then go for it, its cheap credit and a good deal.

YorkshireBoy

bri123 wrote: »

Im £2000 overdrawn (have been for past three years) and get charged about £20 a month interest and want to clear it with about £3000. I have no credit cards and have a good credit rating. Should i get a credit card or a loan if so which card. I can afford repayments of about £150 a month and i bank with barclays.

Some blunt questions, but take them the right way.

If you've been £2K overdrawn for 3 years, how come you can suddenly find £150 a month?

If you have no credit cards, how do you *know* you have a good credit rating?

If your overdraft is £2K, why do you need £3K? You're going to end up with 50% more debt than you have now.

With the Virgin minimum payments of £25 per month only, do you have enough discipline to pay more than this, or save the surplus? If you don't, then at the end of 15 months you'll only have paid off £355...ie, you'll start out £2K in debt and end up £2,645 in debt.

bri123

YorkshireBoy wrote: »

Some blunt questions, but take them the right way. I will, ive thought about ur points...........

If you've been £2K overdrawn for 3 years, how come you can suddenly find £150 a month?

I got a promotion at work with pay rise of xtra £100 a month

If you have no credit cards, how do you *know* you have a good credit rating?

I bought a car and the dealer did a credit check and told me

If your overdraft is £2K, why do you need £3K? You're going to end up with 50% more debt than you have now.

Ive changed my mind im only going to get 2000 so the repayments will be £133 a month as opposed to 200 and a fee of £59 as opposed to 74 I was going to put the extra 1000 into my ISA but i can't afford 200 a month. The first thing I will do is cancel my 2400 overdraft.

With the Virgin minimum payments of £25 per month only, do you have enough discipline to pay more than this, or save the surplus? If you don't, then at the end of 15 months you'll only have paid off £355...ie, you'll start out £2K in debt and end up £2,645 in debt.

I got an 11000 loan three years ago to buy a fishing boat - the start of my problems. I pay 267 a month on this loan and it ends in 12 months. So i will have an extra 267 a month then. I will be able to afford the 133 a month, hopefully!

Thanks