Help!! Confused and seeking advice on request to Credit Union for funds.

[Brendan Burgess]

Hi Warren

This is a very interesting case study of the dangers of borrowing from a Credit Union.

You don't tell us the interest rate on the Credit Union loan. I have assumed it is 9% a year or 0.75% a month. If so, then here is how I see it:

At present you are paying €188 per month on net borrowing of €6,300, which is an effective rate of 36%.

It seems that withdrawing cash from the Credit Card is the best bet. It's bizarre, but I think it's correct. Especially if you can get zero interest on the Credit Card.

Brendan

 

[MrEarl]

...
It seems that withdrawing cash from the Credit Card is the best bet. It's bizarre, but I think it's correct. Especially if you can get zero interest on the Credit Card.

Brendan

I'm surprised that a zero percent interest rate is available on cash withdrawls, as against balance transfers to refinance other credit card accounts, but perhaps it is actually the case.

Also, taking cash out via ATMs triggers cash withdrawl fees does it not, so there is a cost to consider here ?

A further potential consideration might be if the CC provider will only apply the zero percent rate to the first cash withdrawl or something, so I'd have a very careful look at the terms associated with the zero rate offer and if in any doubt, get confirmation by email / letter.

As you say Mr. Burgess, this is a bizarre situation as under most scenarios, refinancing term debt with credit card debt is not a good idea.

 

[warrendublin]

hello everyone,

Sorry for the delay in coming back here!

I can't thank you all enough for the really useful information. Yes it appears bizarre that I use a CC to pay off a CU loan, (it should be the other way around, but possibly this is another example of how CU's are being restricted/hampered to provide the most cost effective borrowing to their members?

Anyway to clarify

1. One of my CC accounts (currently NIL Balance) will allow me a funds transfer from the CC to my current account with no upfront charge for this - it's an electronic payment to my current account.

2. I've spoken with my new CC provider who have no problem with how the transfer balance on my "old" CC card was arrived at - ie they have no issue with whether it was purchases or cash withdrawl. They're happy to take the balance "as is" and give me an offer of 0% on the transfer balance for 6 months.

3. I think timing is key to this..!!

I have to wait until I get the new card/account set up, I then withdraw the cash/EFT from the old CC, go to the CU and pay off the CU loan.

4. I then tell the new CC company to transfer the balance of the old CC to them, to avail of the 0% interest rate for 6 months, thus avoiding interest charges on the cash/EFT withdrawl.

5. I then have 6 months to pay off the outstanding CC debt.

Or am I missing something here...!!

Thanks again.

 

[RichInSpirit]

Hi Warren. The only issue I can see with your proposed solution is that your repayments will be rather high for the 6 months. €242 per week.

 

[warrendublin]

Hi Warren. The only issue I can see with your proposed solution is that your repayments will be rather high for the 6 months. €242 per week.

Yes, that's true, Rich, but at least the money i'm repaying is paying off principal debt, rather than a large wedge of it going to interest payments. (0% approx)

As things currently stand, I'd have a debt of 6,000 approx (there's 300.00 going into my CC in the next couple of days)
to repay. At 0% for 6 months, i'd hope to wipe it out, or almost eradicate it.

 

[warrendublin]

Just to update

1. Withdrew the cash from Credit Card A
2. Arranged a balance transfer of the money from CC A to CC B at an agreed rate of 0% for 6 months.
3. the balance transfer "eventually" went through (although CC Company A kept my debt on their books for 3 working days AFTER CC company B had taken the balance transfer and put it on my account at a rate of 0% - not sure why they were allowed do this, but they said it was working it's way through the system....yeah right!!)

4. I went up the CU and paid of the loan using the cash and my shares - leaving 50 Euro in shares to keep the account open.

5. I now have 6 months to pay off CC B at 0% on balance transfer amount (3,500)

6. I will be paying off the money I was paying to the CU, (500pm) into the CC account, and all of it will be reducing the principal amount rather than part of it going on interest.

I'm not sure how much interest i've saved but i'm guessing it's in the region of 1,500 (19,000 at 7% I think with 500pm repayments)

Finally, I want to thank everyone for their opinions and for "stress testing" the idea before I went ahead with it. Your knoweldge and advice was hugely appreciated.