# Bank Overdraft versus Credit Card Debt



## guido (14 Aug 2011)

Hi - Hope you can help me...
I have a 3K Overdraft facility on my current account but am currently in credit however I also have 3k on a credit card - Should I go into the my OD to pay the Credit Card...at the moment I am only paying the minimum payment so it will take quite a while to pay off?  Is it down to the Interest Rates and credit ratings i.e. the cost of the money and being in OD will affect my credit rating...

Any advice much appreciated
Thanks


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## Macstuff (15 Aug 2011)

You're credit rating will not be affected by being in Overdraft, as long as you stay within the limits of the overdraft agreed with the bank. 
I suggest you look at the interest being charged on your credit card and the interest being charged on your overdraft and then use the one which is lower - it's most likely to be your overdraft. 
If you do use your overdraft you need to make sure that you watch it carefully and leave some room on the overdraft to pay unexpected bills, direct debits, standing orders, the interest on it etc.


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## Brendan Burgess (15 Aug 2011)

Hi Guido

The correct financial answer is that you should use your overdraft to pay off your credit card. In particular, you should not have money in your current account while you have a credit card balance on which you are paying interest. 

It's not just that the interest rate is usually much lower on your credit card. There is usually an interest free period which you can avail of on your credit card if you pay off the amount in full each month. If you are only paying the minimum balance, you miss out on this.

The problem though is that some people use a cheaper loan to pay off their credit card and then they go on a spending spree. They end up with a maxed out cc balance and a maxed out overdraft. If you are not "good with money", then you should not pay off your credit card. However, if you are not "good with money", then you should probably tear up your credit card and use it a debit card instead.


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## guido (15 Aug 2011)

Thanks for the replies....

Brendan, Thanks for that - Can you just clarify the last two lines....I think I know what you mean but just want to be on the safe side - Thanks


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## Brendan Burgess (15 Aug 2011)

Hi guido

Sometimes the correct thing to do numerically, is not the right thing to do because of human behaviour. 

So it is correct to pay off your Credit card with a cheaper overdraft. 

However, if your Credit Card balance is zero , you may be tempted to go on a spending spree and in time you will spend an extra €3,000, so you will end up with an overdraft of €3,000 and a CC balance of €3,000


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## guido (15 Aug 2011)

Yeah I see what you mean Brendan....Just to clarify - I called it a credit card but it is really a loan at this stage - It was a credit card balance that was "migrated" to a loan by Halifax when they closed down here; so I can't use it as a credit card anyway....The interest rate charged is 10% whereas I believe I am paying over 14% on my Bank Overdraft.  So with this in mind, do I just stick with the Halifax "loan"....Thanks again!


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## Brendan Burgess (15 Aug 2011)

You describe it as a Credit Card debt and so my answers refer to credit cards.

You should not move a 10% loan to a 14% loan.

However, if your current account often has a credit balance, then you should consider it.


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## guido (15 Aug 2011)

Ok thanks again - That's clear - Cheers


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