Paying off a credit card quicker

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paulhynes

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Hello

I have a question about credit cards if I may. I'll use an example if that's ok.

Credit limit: €10,000
Amount owed: €9,500
APR: 13%

So in the example above a person would owe €9,500. Someone is trying to clear this credit card so they are paying €600pm off it. That's going to take about 19 months by my calculations at that rate.

They also have about €500 worth of monthly expenses that they pay for separately from their debit card - groceries, bills, etc.

I guess the question is - is there a benefit to putting that extra €500 onto the credit card at the start of the month, and spending the money from the credit card? Would it help to reduce interest?

The credit card does not offer any cashback incentives and the person is not in a position to switch credit card providers to avail of interest free rates etc.

So the two scenario:
Pay €1100 each month off credit card and spend €500 from the credit card each month
Pay €600 each month off the credit card, spend €0 on the credit card each month, and spend €500 from a debit card each month

Which pays off the credit card quicker?

Thanks for your help and let me know if you need more information please.
 
paulhynes said:
I guess the question is - is there a benefit to putting that extra €500 onto the credit card at the start of the month, and spending the money from the credit card? Would it help to reduce interest?
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No. I'm assuming they're based in Ireland?

My understanding is that credit cards here only provide an interest free period if the balance is cleared in full for 2 bills in a row.

Paying 600 per month, they should clear it in just over 17 months.

If they are extremely strict with finances, transferring it to another provider at 0% for 6 months might be an option. Then cancel the card once it's repaid.
 
Yes, it's an Irish credit card company. No option to transfer for 0% due to balance o/s and CCR record.

I guess I was thinking interest may be charged daily and by having the €500 on it for a short time, each month, may reduce interest payments?
 
paulhynes said:
I guess I was thinking interest may be charged daily and by having the €500 on it for a short time, each month, may reduce interest payments?
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Ah, yes it's charged daily, sorry I was looking at utilising an interest free period. But you'd be looking at saving about 32 euro per year interest if the 500 was paid at start of month and spent half way through.
 
Think of it this way if you put 1100 on the card and spend 500 during the month on the card roughly speaking you will pay that actual 500 back in 19months time.
if you can pay the 600 on the credit card and then spend the 500 on your debit card you are not adding to the card.

to improve your credit rating..Have a look at your monthly costs and see if you can get better rates for insurance, food bills and energy bills. If you have anything left of your 500 put that off against the card.
You could contact the card company and see if they can reduce the interest. To correct your credit rating once you start bringing the balance you could ask for the limit to be reduced. If you get paid weekly then pay a bit off from your funds. If you get paid monthly wait for your statement to come out and pay the 600 then That way you will not miss your payment. Good luck.
 
Sconeandjam said:
You could contact the card company and see if they can reduce the interest.
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This is a good point. Bank of Ireland for example have started an initiative allowing customers to convert credit card debt to personal loans.

Bank of Ireland launches initiative to help customers reduce their credit card debt - Bank of Ireland Group Website

Initiative is part of Bank of Ireland’s Financial Wellbeing programme As part of the programme the bank is leveraging behavioural science to deliver positive outcomes for customers struggling to manage their finances Handling your borrowings comfortably is one of the key drivers of financial...
www.bankofireland.com www.bankofireland.com
 
In the example above the credit card company will neither provide a loan replacement or a reduced rate and so alternatives were being viewed for making savings on interest. You guys seem to suggest there's a €30ish saving to be had. Nothing to write home about but every little helps.
 
paulhynes said:
Nothing to write home about but every little helps.
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Also, make sure to make the payment to credit card on the day you get paid. There might be a few days interest to be saved each month. It's not going to be a huge amount either.
 
RedOnion said:
This is a good point. Bank of Ireland for example have started an initiative allowing customers to convert credit card debt to personal loans.

Bank of Ireland launches initiative to help customers reduce their credit card debt - Bank of Ireland Group Website

Initiative is part of Bank of Ireland’s Financial Wellbeing programme As part of the programme the bank is leveraging behavioural science to deliver positive outcomes for customers struggling to manage their finances Handling your borrowings comfortably is one of the key drivers of financial...
www.bankofireland.com www.bankofireland.com
Click to expand...
I did not know they were doing that. Good tip.
 
paulhynes said:
In the example above the credit card company will neither provide a loan replacement or a reduced rate and so alternatives were being viewed for making savings on interest. You guys seem to suggest there's a €30ish saving to be had.
Click to expand...
Your credit card balance is quite high and the 13.5% interest would eat up alot of your 500 euro repayment. If you load the 1100 as your first suggestion you may never pay off the card. Banks would see you as a person that would be in a cycle of spend and repay a very small amount on the card. If you have defaulted then that would go against you but you can correct this. Your icb report will show the last 18months(i think) so you can try to correct this.
Credit cards work on the basis of paying interest, card fees , goverment fees first and then to the oldest item on your card. If your minimum repayment was 3% then 285 would be the minimum(rough figures) and of that 130 could be the interest. 500-130 =370 would go towards the balance. It could take longer than 19months but you have to be good not to spend.
Try NSD(no spend days) in the month. Even stop the take away coffee and see how much that adds up. Try fakeaways. Anyway not to spend you money. Make sure you have an emergency fund which should be built up over time so if you need to draw on it you can.
If you are looking in the future to get a car, other loan or mortage it would take a while to correct you credit rating. Definately look at where you can save money and if you can get extra work somewhere then that would help(could be hard at the moment). If you have a CCR that would be there for a few years.
 
I think you'd just end up in an endless cycle & it would feel like you are never getting to the end of it.

All the previous suggestions re interest rates etc., are good ones; but if none of those are options then decide on a fixed amount and pay that every month.

18 months isn't that long really.
 
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