Paying a HUGE Credit card bill

DaBreno · 03-10-2005 12:23PM #1

A buddy of mine has confessed that he has run up what can only be described as a savage credit card bill 5K+ (he sites moving house as the reason). His interest payments each month come to over €80 yoyos.
I thought for some reason that the best thing to do in this situation was to get a personal loan from the bank to pay the CC coz the interest would be lower. Not sure where I heard this. Does it make sense or is it all the same anyways?

Cheers.

Tusky · 03-10-2005 12:27PM

DaBreno wrote:

A buddy of mine has confessed that he has run up what can only be described as a savage credit card bill 5K+ (he sites moving house as the reason). His interest payments each month come to over €80 yoyos.
I thought for some reason that the best thing to do in this situation was to get a personal loan from the bank to pay the CC coz the interest would be lower. Not sure where I heard this. Does it make sense or is it all the same anyways?

Cheers.

I would guess that the interest on a loan would be much lower than CC yeah.

Dades · 03-10-2005 12:29PM

Make sure he gets his limit cut to something small after though.

Otherwise it could easy happen again... :eek:

03-10-2005 12:31PM

That isn't too bad...

Just put in more than the minimum amount in each month so he isn't pissing against the wind.

True the interest rates will be lower but you are just robbing peter to pay paul. If you pay off the credit card quicky the interest is negligble. However, if this card has been sitting for a while what point is there in paying even more interest to pay off the cc debt?

delly · 03-10-2005 12:35PM

How about moving credit card company and getting an introduction period of 0% interest?

HelterSkelter · 03-10-2005 12:35PM

Personal loan would definitely be better. APR on a personal loan is usually 12%, credit card APR is around 19%. I know several people who took out a personal loan to pay their credit card bill.

HelterSkelter · 03-10-2005 12:36PM

delly wrote:

How about moving credit card company and getting an introduction period of 0% interest?

Even better idea!!

grumpytrousers · 03-10-2005 12:37PM

ronoc wrote:

That isn't too bad...

Just put in more than the minimum amount in each month so he isn't pissing against the wind.

True the interest rates will be lower but you are just robbing peter to pay paul. If you pay off the credit card quicky the interest is negligble. However, if this card has been sitting for a while what point is there in paying even more interest to pay off the cc debt?

Disagree with your analysis. You ARE still robbing peter to pay paul, but if Paul charges a sod of a lot less in interest, then it's the way to go. Credit Cards should NEVER be used as any kind of long term finance. Paying 'over the minimum' is a mugs game - the only way to attack a large credit card debt is to make large dents in it over a maximum of 3 months. Any longer and you're getting fleeced....

Sleipnir · 03-10-2005 12:42PM

The problem many people face after paying off their credit card with a personal loan is they find they have run the credit card bill up again. Quite quickly, they're paying for two loans.

grumpytrousers · 03-10-2005 12:45PM

Sleipnir wrote:

The problem many people face after paying off their credit card with a personal loan is they find they have run the credit card bill up again. Quite quickly, they're paying for two loans.

oh aye - but that's where a bit of feckin' discipline kicks in. To run up a large credit card bill once is forgiveable...we ALL do that, but it's the best evidence you'll ever have that you're living well beyond your means.

To run it down by using a loan and then drive it up again is a sign that you REALLY should take a scissors to it and use one of those 3V things for web-use etc...

irlirishkev · 03-10-2005 12:46PM

Sleipnir wrote:

The problem many people face after paying off their credit card with a personal loan is they find they have run the credit card bill up again. Quite quickly, they're paying for two loans.

Then they shouldn't really have a credit card! One way ticket to brokesville..

DamoKen · 03-10-2005 12:48PM

ronoc wrote:

That isn't too bad...

True the interest rates will be lower but you are just robbing peter to pay paul. If you pay off the credit card quicky the interest is negligble. However, if this card has been sitting for a while what point is there in paying even more interest to pay off the cc debt?

have to disagree with this too, any personal loan will charge way less interest than a cc loan. And if you've just bought a gaff, chances are you aren't going to be paying off 5 grand too quickly, more like a few years. OP, you mentioned that your mate cites a house move as the main reason, I take it from this he now has a mortgage? If so he's more or less in the same position I was a few years back with a hefty amount owing on my credit card due to the necessity of paying back people who'd lent me to make up the deposit. What I did was approach my mortgage provider and got a home improvement loan out of them at a really low interest rate, almost 6% lower than my bank offered if I remember correctly, that I used to pay off my credit card plus a bank loan I'd also needed. I calculated at the time that it saved me in the long term over 2.5K in interest charges.

Sponge Bob · 03-10-2005 12:54PM

5k is a Car Loan over 3 years territory loan

...... but I wouldn't tell yer mate until he chopped up the CC and agreed not to get another one for a year or two.

some people are too stupid to have CC's

viking · 03-10-2005 01:00PM

delly wrote:

How about moving credit card company and getting an introduction period of 0% interest?

Yep, and when that introductory period is over move to someone else, and then someone else etc etc

Credit card surfing...

voxpop · 03-10-2005 01:04PM

5k isnt that much - i had about 8k of cc debt over 2 cards. I cleared that with a tescos loan (7.9%) and got rid of one of the cards. The only thing you have to watch with credit cards is that you are not living off the credit card i.e. spending more on the card than your paying back each month, otherwise before you know it you'll be up to your neck again.

Hobbes · 03-10-2005 01:49PM

I would recommend the first thing to do is cut up the card. Until you pay off the loan you are only going to hurt yourself with an active credit card.

Kernel · 03-10-2005 02:19PM

Credit Union tbh.

And cut the limit on the card to about a grand to cover emergencies.

The Sweeper · 03-10-2005 02:32PM

There are three solutions:

Pay off your interest + a sum off the principal every month.
Become a rate tart and transfer your balance from card to card with 6mths interest-free or somesuch.
Take out a personal loan and pay off the credit card with that, then pay the loan off at a lower rate of interest.

However there is one further problem; if your mate isn't managing his cashflow, and is living beyond his means, then none of the three things above will help. He needs to do the following:

Map out his budget. He needs to track everything that comes in and goes out every month. To the nearest fiver. This is vital. If he doesn't do this then he's flying blind. Nothing will help unless he does this.
He then needs to see what he can and cannot afford. Budgeting is like dieting - drawing up a crash budget will be just as unsuccesful as drawing up a crash diet. He needs to cover all of his bills, some spending money and a set sum every month to blow on incidentals. (Like €60 for those "must have" crap purchases everyone makes.)

Until he properly tracks his spending, he will have no idea what he actually can and cannot afford to pay, therefore he will have no ability to make an informed decision about which one of the three routes out of debt he can take.

For instance, if he already lives beyond his means, and he takes out a personal loan to pay off his credit card, then he'll continue to live beyond his means, and the extras will go on the credit card, and he'll end up with a 5K bank loan AND a 5K credit card bill.

RainyDay · 03-10-2005 02:43PM

viking wrote:

Yep, and when that introductory period is over move to someone else, and then someone else etc etc

Credit card surfing...

Many credit card surfing offers will only give fairly low credit limits/transfer sizes of 1k to 3k, regardless of your income or existing credit. You'll need to make sure that they will take enough of your balance to make it worth your while. And remember that you'll get hit with the 40 euro credit card stamp duty on each account that you open.

Stephen · 03-10-2005 03:58PM

This is why i always pay off my credit card in full every month, no matter how much is on it. Its too expensive to use long term.

Jimi-Spandex · 03-10-2005 05:05PM

I'd recommend going to MABS (Money Advice and Budgeting Service) it's a govt provided service that helps people in levels of debt like that. It's a free service by the way.

MABS

DaBreno · 03-10-2005 05:07PM

Thanks for the replies folks. Tis quite easy to run a large bill on the CC, Ive done it myself. Remortgaging was mentioned as an option for him, but it can only be done one year into the Account(Permanent TSB anyways). Good points about the loan being used to pay it off, the CC should be cut up or you wind up with two loans. I also liked the idea of reducing the Credit limit on the card, I'll do that myself!
Ah well, better him than me.

nesf · 03-10-2005 05:31PM

Re-mortgage for 5K?

Seriously not worth doing imho. It would be a lot cheaper for him in the long run to just take out a personal loan to cover the CC debt and try for a lower limit on the card.

Credit cards are handy, but you shouldn't have a limit larger than you can pay off comfortably and quickly. Otherwise you can end up badly in debt very easily.

We've all run up our CCs at some point or another, but you need to learn some responsibility with them. The interest rates are very high, it's really not worth it to use them as a form of credit over any appreciable lenght of time. Personal loans are a lot cheaper and easier to manage.

chump · 03-10-2005 06:18PM

If I was him I'd live on the breadline for a few months and make a solid dent in it...

He could give up the booze and the like
Maybe get a perscription for sleeping pills so any time he gets an urge to splurge he can just konk himself out

Sparky · 03-10-2005 07:57PM

Ive run up a CC bill of 1400, so i have a 30% payment per month, i try not to buy stuff on it, but some things especially on the net are cheaper than the shops in town.
My last balance was 1100, and i am paying 364 per month to pay off, and my interest turns out to be 12 euros per month.
My goal is to fully pay it off by christmas, now with having more money after the bike insurance has been payed off.

RainyDay · 04-10-2005 09:08AM

Sparky_S wrote:

but some things especially on the net are cheaper than the shops in town.

Sounds like you're kidding yourself - do you build the cost of the interest that you are paying into your calculation about which is cheaper?

Sparky · 04-10-2005 09:14AM

RainyDay wrote:

Sounds like you're kidding yourself - do you build the cost of the interest that you are paying into your calculation about which is cheaper?

no its just easier to put it on the card, rather than taking out say 300 euros from my account, because most of the time i have DD and SO coming from my account and i need to know i have the money there to meet it.

Im good at paying off things, and my credit with the bank is tops.

Tazz T · 04-10-2005 09:18AM

5k ain't that much. Transfer to a 0% card, do a montly budget and plough everything you can into it until the introductory period is over. You'll be surprised how much you pay off.

Then transfer to another 0% card.

FrankGrimes · 04-10-2005 09:38AM

Go visit http://www.askaboutmoney.com and you'll get some very good advice. It'll mainly be along the lines of: change credit card and get a six month interest free period. Get a personal loan from bank or credit union NOW and by the time the interest free period is up youll have saved on interest and reduced the capital sum, thereby decreasing future interest payments.

RainyDay · 04-10-2005 10:24AM

Bit of a contradiction between

Sparky_S wrote:

Ive run up a CC bill of 1400, so i have a 30% payment per month

and

Sparky_S wrote:

Im good at paying off things, and my credit with the bank is tops.

You really should clear your CC account every month. Making only a 30% payment most of the time is costing you lots of interest.

There is nothing wrong with using the CC account for cashflow purposes, and take the 56 days free credit they offer you. But you should really clear your card each month except for very very tough months.

MorningStar · 04-10-2005 11:07AM

Tazz T wrote:

5k ain't that much. Transfer to a 0% card, do a montly budget and plough everything you can into it until the introductory period is over. You'll be surprised how much you pay off.

Then transfer to another 0% card.

This is good advise but some people have taken this advise and warped it to make the problem worse. I heard of people doing this and not controlling their spending.

Alot of people here have said we ALL end up with a huge debit on CCs at some point and it is normal :eek:
It's not normal but certainly some people seem to be thinking it is. Generally as far as I can see it is mostly people in their early 20s getting in trouble but older people are less likely to do this. It could be just youth but it seems to be a change in attitude mostly. Younger siblings and friends' younger sibilings most certainly fear getting in debit. Very strange as if I ever want something I save for it first and only use CC as convenient method of payment.
Not really saying one is better over the other but I know which way I feel comfortable with.

Paying a HUGE Credit card bill

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