From: Ronald Raygun 
Subject: Re: Pay extra to mortgage or 'stooze'?
Newsgroups: uk.finance
Date: Sun, 30 Jan 2005 13:30:17 GMT

sarah wrote:

> I owe £1500 on my visa card but the money is sitting in a mini cash ISA.
> I'm paying the minimum on my visa balance each month from my pay - but am
> switching the balance around the 0% offers.
> I'm due to switch it again soon - would I be better off paying it off and
> putting the £30 or so each month into my mortgage instead?
> 
> My mortgage is already down to 4 yrs 7 months.

No, it would not be a good idea to crack open the ISA and use the
money to pay off the card, because you'd be losing interest at
(say) 4.8% on £1500 for 4 years in order to pay off a loan which
isn't costing you anything.  You'd be down £288.

The cashflow of £30 would be going to pay off debt in both cases,
in the original case (as things are) you'd have as good as paid
off the card in 4 years, while with plan B you'd have paid the
same amount off the mortgage, which would have saved you roughly
half of 4 years' interest at (say) 6%.  That's £180.  So you're
still down £108.

A better idea might be plan C:  Crack open the ISA and pay the £1500
off the mortgage.  This would lose you £288 over 4 years as above
but would save you £360 in loan interest payments.  Keep the £30
cashflow dedicated to paying off the card debt.  You'd be up £72.

But is that worth:

(1) The risk that you might not be able to find 0% deals for the
full 4 years it would take you to pay off the card, and then not
have the money in the ISA any more, and suddenly find yourself
having to pay out interest at the card rate?

(2) Losing out on interest income from the £1500 in the ISA not
just for 4 years, but forever?

No, what I'd do is keep going as you are, until the 0% offers
run out.  Then use the ISA money (or as much of it as necessary)
to pay off the card because it would then start costing you some
1-2% per month, which is much more than you're earning in the ISA.