Virgin payment dilema - what do you do with spare cash?

LEWKI

I have 1 debt. It is with Virgin CC on interest free for 15 months ending September 2009. Minimum payment will be taken in August for £25. The total debt is circa £13,000.

I have managed to save/put aside £1,460 during July. I expect to save around £500 in August and then around £1,000 in September when OH returns to work after school holidays. I have £0 savings - only what I have saved in July...

My question is, should I over pay my CC bill on a monthly basis? I know I will gain interest on my savings, but on the grand scale these will be small.

I dont like the fact I have this debt and I would hate to build up the savings pot to around £6,000 by the end of the year and then see that big lump going to pay debt... (stupid I know as I have to pay back at some point!)

What do other people do? What is more important, to have some money behind me or reduce the debt.
Any advise would be very welcome

robnye

in short - as the debt is at 0%, you should look at it this way...

by putting money into a svings account you will gain 5% or 6% or more interest on it,
then when the 0% deal finishes on the credit card, pay it off with money from the savings account...... in the long run you will gain from it by receiving the interest

personally i would build up the savings - get the money market to pay me something for a change

LEWKI

Thanks Robnye. Yes I understand the interest gain I just hate seeing the statement with 13k on it. Maybe I should forget about it and just keep building the savings pot

NickX

LEWKI wrote: »

Thanks Robnye. Yes I understand the interest gain I just hate seeing the statement with 13k on it. Maybe I should forget about it and just keep building the savings pot

Its not the figure on the statement that matters.

Its :

(Total Debt) - (Total Savings)

Ideally you want this to be a negative figure, then you are solvent and stoozing.

However, the interest earnt will add to your savings and dig into this differential (every penny helps remember).

When you are on a promotional rate, you are best to pay the absolute minimum, and put the rest into a savings account to earn interest on.

But be ready to settle the debt BEFORE the promotional rate expires, if you can't then Balance Transfer elsewhere.

Remember you are earning interest on the Credit Card Companies money, can't be bad :beer:

Richard019

LEWKI wrote: »

Thanks Robnye. Yes I understand the interest gain I just hate seeing the statement with 13k on it. Maybe I should forget about it and just keep building the savings pot

As a really basic way of helping with that. Set up a spreadsheet showing your credit card balance and your savings balance with a total column showing what the overall figure is. That way when you get your statement each month you can put in the two latest figures and see the actual debt coming down. If you want to take it further have a seperate column for the interest that month you can work out how much extra you're actually paying off compared to putting it off the balance straight away.

Incidentally, using what you've got there just from this month if you're in a 6% savings account paying tax you're talking near enough £90 by this time next year, minus tax of either 20% or 40%. Even in the worst case you'd be getting over £50 interest after tax. Add in savings in subsequesnt months and £3-£400 doesn't look like an unreasonable guess. If you don't put it in savings then when it comes to next September that much extra isn't really that small an amount extra to find is it? (Even better returns to be found if you use your ISA allowances)

YorkshireBoy

Paying only the minimum, and saving the rest, will go some way towards recovering the 2.98% BT fee you've had to pay Virgin. By doing this you're keeping the 'true' cost of the deal closer to 0%.

Be careful when you come to shift the debt next year, ie be sure to pay down with the savings before attempting to BT it on. Also, do not lower the credit limit too much because it will give the appearance of you being maxed out. Then again, too high a credit limit could put other lenders off. Ideally, you ought to have around 40% headroom...providing your salary will support it.