Ask Paul: Should I use a credit card cash advance to pay off my car loan?

Dear Paul,

I'm restructuring some of my finances to increase the amount I'm saving, so have been considering how I can reduce the interest I'm paying on my car loan.

My current payout figure is $19,500. If I let it run the full term to January 2023 I'll pay almost $4000 in interest. I'm considering using a credit card (cash advance) to pay out the car loan, then applying for a new interest-free balance transfer. 

My current credit card has an $11,000 limit, and I have been paying it down and have $4000 available, so I'd need to increase its limit to be able to pay out the car. I'd also need to apply for a new credit card with an interest-free balance transfer to pay off the old card. 

Is this possible? If I apply for an increase with my current provider and also apply for a credit card with a new provider at the same time, will this show on my credit file? Or is there a delay before my file is updated? Or do you have another suggestion? 

I also have $30,000 in savings, which I am very reluctant to touch as in the past I have been a terrible saver, so seeing that amount of money in my account that is growing is very motivating.

All going well, I'm hoping to have $45,000 in savings and be debt-free by January 2023. - Clint

Crikey, Clint, I think you have got the wrong end of the horse here. Can we start again?

We are in complete agreement that paying out the loan and saving $4000 in interest is exactly the right thing to do.

I also understand that you are motivated by your pot of savings and don't want to touch them.

But I want you to be far more motivated by the fact that you have built a savings habit and you have solid saving goals.

We also need to think about the $7000 on your credit card. I suspect that in this low-interest-rate climate your savings are earning close to zero. Your credit card will be costing you far more than zero.

So, my advice is blunt, but effective. Use your savings to pay off the $7000 on your card, plus use another $19,500 to pay off the car loan. Do make sure you check for any early repayment penalties.

Yep, this will only leave you with some $3000 in savings, but I am hoping this will motivate you further. You won't have car repayments, you won't have credit card interest and repayments, meaning you can save even more.

My view is that by removing unnecessary interest payments and not mucking around with interest-free credit cards, which will still have some cost attached to them, these actions right now, plus committing to your ongoing saving plan, will leave you in an even better position by the end of 2023.

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