Loan vs Credit Card repayment question

klane

I don't know how best to pay these... any advice welcomed. I have looked at the Snowball before, but am now just confused. :rolleyes:

I have a balance of around 2900 on a 0% credit card for the next 10 months. I've JUST transferred this, so not sure the minimum payment yet (the 2 previous cards were approx 20% so the total minimum then was 70 total - presumably, it might now be less?)

I also have a loan with a balance of 9033 (8801 as of May 1) - if I remember the rate correctly, it's at 5.9%. I pay 232 a month minimum payment.

I just called the loan co - Tesco Finance - to see if I could make overpayments monthly/online/when I had the extra money available, and was told I can't. The only thing I could do is pay it off IN FULL early ( which if I did it today (I wish) would make it £8100).

I had thought as the c/c was now 0%, instead of paying more off that, I ought to pay more off the loan, as it's a higher interest rate. My credit rating is ok so I have no reason to think I wouldn't be able to get a new 0% in 10 months time, if I wanted to move the remaining debt on again. However, I can't overpay on the loan.

Therefore, should I just get the credit card paid off as early as I can, as I can obviously overpay that? It seems a "waste", as it's on 0%? Or, maybe I should get a decent savings account with good interest rate (A&L? First Direct?) and put the money I would have overpaid on the loan into that, as hopefully I can get an account at a higher interest rate than the loan is, so that could accumulate and then I might be able to pay it off in full earlier?

I'm not sure yet how much extra I'll have to throw at my debt each month - it'll probably vary. I do love online banking though, so it's quite likely as I check my current account through the month and find I have "extra" cash, I'd transfer it.

Also - when my husband and I come to redo our mortgage in August 2009 - will we look better if I have no/less credit card debt then? Or doesn't it matter, if I have the equivalent amount I would have paid off that, in a savings account?

poorandindenial

If you can't pay the loans in full and would incur big charges for overpaying then I would do the following:

Put all the overpayment money into an ISA up to the £3600 limit (some instant access ones pay up to 6-6.5%) and leave it in there until the 0% credit card is due to go back to its normal rate.

Pay off a lump sum against the credit card as soon as the 0% rate is up

Then you can resume saving the cash you would have thrown at the loan until you have enough to repay in full (to do this you will need to open a savings account in addition to the isa)

Other options would to get the loan rescheduled by the company you are with (or another) but I would hazard a guess that you would find your interest rate upped significantly (from your very good rate if it is 5.9%) if you did this. OR [fairly risky option] if you can find a 0% credit card big enough to take the balance then you could keep shuffling the balance but this is risky as you could end up with it trapped on a 15+% card. The other risk is that the more 'new' products you look at to take this debt the worse your rating will look and the higher the interest rates would be.

EDIT: rescheduling in this case would be taking out another loan to cover the first with higher monthly repayments but obviously you would need to watch the interest rates

ltm07

Personally I would just pay the minimum payments on the CC & then transfer in 10 months & put any spare cash into an ISA or high interest account to save towards paying loan off early. It may be worth posting this on the CC Stoozing board,as they would be able to advise better than me. Good luck!

GeorgeUK

£2900 at 3% minimum is £87 (usually the highest minimum they take - you could check from the bank advert online probably)

If you can get a Virgin Money card with 8100 limit, you could do a super balance transfer and pay off the loan, leaving 8100 at 0% interest for 15 months. This would require about £243 transfer fee and £243 minimum in the first month - each subsequent month would be £25 minimum. Not sure you could get this limit though.

Failing that, you could pay the minimum to the CC, pay the loan and anything extra put into a high interest savings account as you said. Just make sure there are no charges or loss of interest penalties if you take the money out without notice.