Financial decision; would this be a mistake?

[The Horae]

Hi all,

I'll keep it short. Current situation is this:

Partner has a UK CC - they're a citizen who moved here many moons ago. We had to do some spending on that CC a long time ago and have been paying it every month in Ronds. Painful. But it is what it is. I believe the interest rate is around 21% or so.

I'm now considering just paying it off completely, by taking the money out the bond and then diverting what we were paying to the CC to the bond to repay it back. I am thinking we might save some interest here.

The maths says, I'd save around R20k doing this. But I am not sure it's the right move to do either. It's a fair amount of money to pay back. I'm also not sure if the bond payment will then go up - I don't think so, as the money in the bond is the extra we have been paying on top of the monthly instalments.

The alternative, is to pay extra to the CC each month and not to the bond, as we have been doing.

Any thoughts?

Thanks

 

[johnjm]

What is the interest rate in the CC? And how much is the total CC debt?

How did they manage that….

 

[3WA]

Pay off the higher interest debt first. Your bond isn't at 21%, so pay off the credit card.

 

[chrisc]

21% in the UK? That does not sound right. The UK Bank rate is 1.09% and all other financial instruments are based on that

 

[The Horae]

What is the interest rate in the CC? And how much is the total CC debt?

I believe it's around 21% or so. Just by looking at what we pay as a min each month + outstanding. But my partner has struggled to find the exact number.

Pay off the higher interest debt first. Your bond isn't at 21%, so pay off the credit card.

This is my thinking too and that I'd make up the money in the bind quicker than paying off the CC at the normal rate.

21% in the UK? That does not sound right. The UK Bank rate is 1.09% and all other financial instruments are based on that

1.09% sounds very low for a CC. But let's assume its that low - then it would make no sense to pay it off in this way?

 

[The Horae]

So the CC seems to be 21% APR. So that's what it costs per year. So around 1.75% a month.

 

[Hamster]

I'm now considering just paying it off completely

From a similar past experience I can tell you the only way to pay off a CC with a high interest rate like that is with lump sums. When you reach the 20%+ mark the bank has trapped you and if you want proof try to negotiate a lower interest rate. They want to suck you dry.

 

[The Horae]

From a similar past experience I can tell you the only way to pay off a CC with a high interest rate like that is with lump sums. When you reach the 20%+ mark the bank has trapped you and if you want proof try to negotiate a lower interest rate. They want to suck you dry.

We are currently paying around 2 x the min amount. Which is making a dent in the card. I think I just want it over with and use money from bond to squash it and then start putting the extra money from what we were paying to the CC, to the bond instead.

 

[Sinbad]

21% in the UK? That does not sound right. The UK Bank rate is 1.09% and all other financial instruments are based on that

No, that's about right. Short term credit here is pretty much unregulated.

 

[rietrot]

So the CC seems to be 21% APR. So that's what it costs per year. So around 1.75% a month.

Geez what are you even doing trying to convert interest to a monthly rate. Just, No.

 

[The Horae]

Geez what are you even doing trying to convert interest to a monthly rate. Just, No.

Thanks. Yeah I know that's generally not how it works. But trying to break it down a bit. Anyway, if I was a financial expert I wouldn't be posting here.

 

[richjdavies]

In short, yes, makes sense. Check that your bond costs (not just monthly cash payment, but interest rate, charges, fees etc.) don't change.

The reason why many people don't do this traditionally is because they will just go back out and spend on the card again!

PS - also there are options surely of moving the CC to a lower rate card (if the person still has legitimate ability to run bank accounts etc. in the UK)

Balance transfer credit cards

If you're paying interest, see if you can transfer your debt to a 0% deal. See Martin Lewis' top pick balance transfer credit cards.

www.moneysavingexpert.com

Best 0% credit cards

If you spend on cards but don't repay in full, try interest-free credit cards up to 20 months. See Martin Lewis' top picks on 0% credit cards.

www.moneysavingexpert.com

 

[Sepeng]

Usual disclaimer of not being a financial planner and all that but...

I'd take the money from the bond and pay the CC off. Interest rates on bonds are pretty low right now.

 

[SafariTin]

If I were in your position I would pay off the credit card now using the money from the access bond for two reasons:

1. The interest on the bond is likely lower than 21%
2. I'd like to remove the risk of currency fluctuations. The ZAR is relatively strong now.

If it is an access bond, then your instalment will likely increase (it likely decreased each time you paid in extra), but you can still pay the difference between your current double payment to the card and the increase in the instalment back into the access bond in order to pay back the bond quicker.

 

[The Horae]

In short, yes, makes sense. Check that your bond costs (not just monthly cash payment, but interest rate, charges, fees etc.) don't change.

The reason why many people don't do this traditionally is because they will just go back out and spend on the card again!

PS - also there are options surely of moving the CC to a lower rate card (if the person still has legitimate ability to run bank accounts etc. in the UK)

Balance transfer credit cards

If you're paying interest, see if you can transfer your debt to a 0% deal. See Martin Lewis' top pick balance transfer credit cards.

www.moneysavingexpert.com

Best 0% credit cards

If you spend on cards but don't repay in full, try interest-free credit cards up to 20 months. See Martin Lewis' top picks on 0% credit cards.

www.moneysavingexpert.com

I'll check out those options; thanks. Partner was born in the UK so they have all the legal rights to banking sector.

I've told them that once the card is paid off, we are closing it. We don't have a need for it anymore and have not used it in over a year.

Usual disclaimer of not being a financial planner and all that but...

I'd take the money from the bond and pay the CC off. Interest rates on bonds are pretty low right now.

Bond is at 6.95%

If I were in your position I would pay off the credit card now using the money from the access bond for two reasons:

1. The interest on the bond is likely lower than 21%
2. I'd like to remove the risk of currency fluctuations. The ZAR is relatively strong now.

If it is an access bond, then your instalment will likely increase (it likely decreased each time you paid in extra), but you can still pay the difference between your current double payment to the card and the increase in the instalment back into the access bond in order to pay back the bond quicker.

Yeah, the bond is 6.95% - so lower than the CC for sure.

If the bond amount where to increase, it would not affect us as I have always paid what the original amount was and a bit extra - so that when the repo rate goes up again, it doesn't make a difference to my month-to-month banking.

 

[Cius]

Definitely better to pay off the card now, especially when the rand is strong like now. The only time it would not be is if the card is being paid off in say 3 years and you pay it off in the bond over 20 years. In that scenario even with the lower interest rate because of how many more months you pay it off over you would end up paying more. However that does not sound like what you are doing if you will switch your doubled payment to the bond instead.

Most debt payoff plans involve a plan to pay off your debts in order of most expensive first, and then roll the payment into the next to accelerate that one being paid off too etc.

Being completely debt free is one of the best feelings in the world!

 

[The Horae]

PS - also there are options surely of moving the CC to a lower rate card (if the person still has legitimate ability to run bank accounts etc. in the UK)

Balance transfer credit cards

If you're paying interest, see if you can transfer your debt to a 0% deal. See Martin Lewis' top pick balance transfer credit cards.

www.moneysavingexpert.com

Best 0% credit cards

If you spend on cards but don't repay in full, try interest-free credit cards up to 20 months. See Martin Lewis' top picks on 0% credit cards.

www.moneysavingexpert.com

Hmmm this seems like a good alternative. But what's in it for the financial institutes? 0% would mean we could pay that card off in well under 29 months.

 

[The Horae]

Definitely better to pay off the card now, especially when the rand is strong like now. The only time it would not be is if the card is being paid off in say 3 years and you pay it off in the bond over 20 years. In that scenario even with the lower interest rate because of how many more months you pay it off over you would end up paying more. However that does not sound like what you are doing if you will switch your doubled payment to the bond instead.

Most debt payoff plans involve a plan to pay off your debts in order of most expensive first, and then roll the payment into the next to accelerate that one being paid off too etc.

Being completely debt free is one of the best feelings in the world!

That makes sense. I am expecting a bonus in July too, which I will be dumping into the bond as well - well, most of it. As well as paying double the min rate of the card into. So it should be repaid in the bond, in under 10 months at the rate I want to do it in.

 

[deweyzeph]

If it is an access bond, then your instalment will likely increase (it likely decreased each time you paid in extra), but you can still pay the difference between your current double payment to the card and the increase in the instalment back into the access bond in order to pay back the bond quicker.

I've got an access bond with FNB and the monthly payment does not change when you pay in extra. Nor does it change if you take out whatever extra you've paid in. The only thing that changes is the capital to interest ratio that makes up your monthly payment. This may be FNB specific though, or maybe just the particular access bond product I have.

 

[Sinbad]

Hmmm this seems like a good alternative. But what's in it for the financial institutes? 0% would mean we could pay that card off in well under 29 months.

They want you as a customer.