View the article online at http://citywire.co.uk/money/article/a426115
A credit card to pay off your expensive overdraft
A new card offers 'a rare opportunity to save on expensive loan or overdraft interest’. Whether or not this is a good idea depends on how desperate you are to borrow.
Anything that helps reduce the cost of borrowing is welcome and the new offer from MBNA can do just that. Andrew Hagger of Moneynet points out that the new card is different from many other promotional offers because its 0% concessionary rate period applies to money transfers as well as balance transfers. This means you can use it to pay off other credit cards and current account overdrafts. Unlike a balance transfer transaction, a money transfer can be paid into your current account offering more flexibility and opportunities to cut interest costs.
‘Whilst interest free deals allowing you to switch balances from one piece of plastic to another are almost ten a penny, the option to use a balance transfer to clear non-card debts is a rare opportunity to save on expensive loan or overdraft interest,’ says Hagger. Whether or not this is a good idea depends on how desperate you are to borrow.
Hagger has calculated that the 1.9% introductory rate for the first year could save customers a significant amount since overdraft interest rates average around 19%. This means an account holder would pay £47.50 over 12 months for a balance of £2,500 on the MBNA card compared with more than £480 for the same amount in an overdraft with HSBC, RBS or Lloyds TSB. But it is worrying to think of anybody paying off an overdraft with a credit card – even if you can do it at 1.9%.
The new MBNA card has an introductory rate of 1.9% for 12 months – on money and balance transfers. Most balance transfer cards charge a fee of 2.75% to 3% of the sum transferred if you use this facility. But be aware, the no handling fee and low rate will apply only to balance transfers and money transfers made in the first 90 days of the account being opened. And be certain you can pay off the balance once the 0% concessionary period ends because the standard interest charge is 16.9%
‘This is an excellent opportunity to get to grips with your overdraft and save some money in the process. The interest rate on the card reverts to 16.9% after 12 months, so make the most of the low rate and knock your debts into shape whilst you can. If you’re smart, you’ll have cleared your balance or at least made big inroads within the promotional period,’ says Hagger. Let’s hope that is the way the cheap money facility is used and it isn’t taken up by those who are simply juggling unmanageable debt.
The new product is launched just a few weeks before MBNA changes the way payments are allocated to customers’ credit cards. From September 1st, 2010, payments made to MBNA credit cards in the UK will go towards paying off balances with the highest interest charges first – a big improvement. This is an internet-only offer. Full details at www.mbna.co.uk.
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