Using cash advance to pay back loan

LRockhard on 03/03/2014 - 13:00

Hi Ozbargainers

Need some help deciding on what to do with my debts. I've 28 degrees Mastercard with 8000 in it. Recently I applied for a ANZ First visa with 12 months interest free for balance transfer. They gave me 15000 credit limit. I also have personal loan with ANZ with current balance standing at 6000. My monthly minimum repayment for that loan is 248 (14.69% interest rate). AT this rate it'll paid in three years. I do not have any other loans other than home loan. What I'm planning to do is transfer 14000 to 28 degrees and get 6000 from 28 degrees to pay back personal loan. If you have the money transferred directly to a savings account than the cash advance fee is $30 capped not 3% if you say take the money out through ATM.

My reasoning behind this is: I'll have 14000 in debt in my credit card account but will be interest free for a year. If I pay 500/per month a year that will reduce it to 8000. After that it is 19.74% interest rate. Using an online repayment calculator, If I keep on paying 500 that will be paid off in 1 yr 7 Mths.

If I don't change anything and just keep repaying my personal loan and up the repayment to 300, It'll take 2 Yrs and 3 Months to repay according the the ANZ Personal Loans Dept. In which case I'll be paying 200 towards my credit card.

In summary, I'll be paying 500 in total regardless of whether I pay a consolidated credit card account or split creditcard+personal loan account. I think Consolidated Credit card would be a better idea. However You guys may know something about this that I'm missing. SO please let me know about your ideas

Financial

Comments

  • ilostnemo on 03/03/2014 - 13:09
    +1

    If you have equity in your house, I'd go for a line of Credit account.
    Pay out your personal loan, and then when your interest free period ends on credit card, pay them out.

    your line of credit will be at your current home loan rate ie approx. 5%

    • MementoMori on 04/03/2014 - 10:47
      +4

      I would STRONGLY recommend anyone have trouble with simple credit card debts on amounts less than $10,000 need to go through the learning experience of paying them off via the old fashion hard way from saving from your wages. Dipping into your mortgage to fund consumer debt is something you can get used to too easily and can lead to much more debt. Have to fix the leak in the bucket before you fill it up again.

  • Rockhard on 03/03/2014 - 13:14
    +1

    Don't have equity. It's a new house.With current Melbourne West housing market I'd say I've negative equity

  • ozhunter on 03/03/2014 - 13:24

    Your post was a bit hard to understand, but I don't see why it wouldn't work.

    • Rockhard on 03/03/2014 - 13:32

      I know. But financials are never easy anyway

      • ozhunter on 03/03/2014 - 14:20

        I meant the way you explained it. You say you already have the ANZ credit card. Would they let you balance transfer $14,000 to it even though the limit is $15k? Can you still get the 0% for 12 months even though you already have the card?

        • Smulder on 03/03/2014 - 14:31

          Meh nvm

  • Smulder on 03/03/2014 - 13:56
    +2

    Certainly you should balance transfer the $8k credit card debt to the new interest-free card.

    But I would be hesitant about replacing your personal loan debt which has an interest rate of 14.69% with a credit card which will have a variable rate of 19.74% after the interest-free period.

    If your financial circumstances were to change in the next 12 months and you can't keep up with the $500 a month you are planning, you may find yourself at the end of the 12 month period with a higher level of debt at a higher interest rate, and be in a worse position than you are now.

    There will probably be fees to pay out your personal loan early also.

    • Rockhard on 03/03/2014 - 14:53

      I get what you're saying. I've committed myself to this kind of repayment schedules before and followed through without any hitches. Let's say I've very good job security(The kind where you'll lose job only when the whole company goes bankrupt). Unless I got physically handicapped( In which case none of this would matter) I'd have no problem with continuing the repayments.

      Taking into account that situations won't change and I keep my repayment schedule strict, do you think it's a good idea?

      • Dumax on 03/03/2014 - 15:33

        Are you positive that the cash advance is going to be interest free? Most CCs that I've dealt with specifically exclude cash advances from any interest free periods - so be sure to have that checked specifically.

        Ideally you'd want to get a LoC from your homeloan (even just enquire), but if you can have the cash advance interest free it will make sense as long as you adhear to your planned repayments.

        • Smulder on 03/03/2014 - 15:54

          I believe he is planning to withdraw the $6k cash from 28 degrees card, bringing the balance in that card to $14k, then transfer that balance across to ANZ.

      • Smulder on 03/03/2014 - 15:50

        I realise you have already taken out the ANZ card, but perhaps you should look into other balance transfer options to see if there are any that would serve you better?

        Just as an example, CitiBank ReadyCredit has balance transfer of 24 months at 5.9%p.a. If you make $500 repayments and repay the loan over 2.5 years, the interest will actually work out less than your plan.

        They will also send you a cheque for the balance transfer amount (Google "cheque to self"), so you can use the funds however you want, saving the $30 cash advance fee from your plan. There is also no annual fee, unlike your card which has a $30 annual fee. That's $120 saved right there (over 3 years).

        Not to mention, the interest rate when the balance transfer period ends is less than your card, $18.99% p.a vs 19.74%.

        I am by no means endorsing CitiBank, and I am sure there are other similar deals, I have just had a ReadyCredit loan in the past which I used to repay a $9k debt last year. I found having a small interest rate over a longer period of time made easier to budget, not to mention cheaper overall.

        As to whether I think it is a good idea, I stand by my original comment :)

  • orangeblossom on 03/03/2014 - 16:29

    Here is my suggestion :

    1. Put the 14,000 Balance Transfer from ANZ to 28 degress
    2. If you don't need the 28 degrees card anymore, close it and ask the bank to transfer the $6,000 to your ANZ personal loan (hopefully without fee if you ask the bank to do it for you upon closing the card).
    3. Pay your $500 per month in the following way :
      a. pay $280 to your anz first (assuming 2% minimum payment)
      b. pay $220 to a high interest saving account e.g. ubank
    4. At the end of 11 months :
      a. ANZ first : $280 * 11 = $3080 paid -> Remaining balance $10,920
      b. balance in your high interest saving account : 11 * $220 = $2420 + interest
    5. At the end of 11 months, transfer $2420 from your high interest saving account to your ANZ first. Therefore, remaining balance is $8500.
    6. Before the 0% balance transfer rate expired (month 11), move your $8500 balance to another 0% balance transfer card.

    Ps. Do not use your anz first card for other transaction other than paying off your balance to avoid paying interest.

    I hope this helps!

  • Rockhard on 03/03/2014 - 23:50

    Thanks for all the replies and advices. I'll look into the ReadyCredit option

  • spersephone on 04/03/2014 - 07:48

    You have to have applied for the balance transfer at the time of applying for the card, or activating it, did you do this?

    • Smulder on 04/03/2014 - 08:38
      +1

      See this deal. Existing ANZ cardholders can do a 0% balance transfer for a limited time.

      • spersephone on 04/03/2014 - 09:17
        -1

        Oh, I read it as this was something you had to apply for at the beginning, as a new customer, didn't think it applied to existing cards.

  • PlasticSpaceman on 04/03/2014 - 10:12

    Not a financial adviser/planner/yadda yadda yadda, but…

    Definitely if you manage it carefully, and keep with the plan, using the 0% interest option is a great way to reduce the debt quickly. As you already have a home loan, if you have some equity there then you could also consider using that to consolidate your debt under the home loan rather than a personal one ie at the end of the year you shift the remaining $8k over into your home loan and then pay 5% (or whatever it might be) and put the extra $500 into the home loan instead. Avoid like the plague getting another personal loan, build up the equity again, and after a while you might be able to look towards an investment property…..

  • Rockhard on 05/03/2014 - 10:59

    After giving it some thought and going through all the posts this is what I've decided to do. I'll close my personal loan with cash advance. Tnen I'll take orangeblossom's advice of opening a interest savings account and after a year when the interest starts, move to another card or go for a readycredit type of loan or shift to my home loan whichever is feasible at that time.

    • Smulder on 05/03/2014 - 14:16
      +1

      You will only earn about $50 in interest over the 11 months. Then the ATO will take about $15 of it. All that effort for $35.

      At the very least save your money in a mortgage offset account where the benefit won't be taxable.

      Or just use the full $500 to pay the balance off. It will give you at least $35 value in the sense of accomplishment as you watch the debt balance reduce more quickly. Plus then you won't be tempted to spend it on junk from OzBargain deals :)

  • Rockhard on 13/03/2014 - 13:17

    Just a follow up on this. 28 degrees waived the cash advance fee for me. You can only transfer 3000 every 24 hours. So that saved me 60 dollars. You'll have to ask nicely though

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