Pay off debt or save the cash?

Dear wannabes

As debt-free wannabes, we've been working away at around £30k worth of debt for the last few years. We're now down to £11k and recently came into some money and have £5500 in cash.

We have a Personal Loan with a bank with £6500 (6.9%apr) which costs £290pm and a credit card with £4500 (6.5% fixed for life of balance) with a minimum payment of £100pm. We currently pay £200pm to the credit card.
The idea is to get rid of the fixed £290pm loan amount for an amount that is controlable by us. We will probably continue to put the same amount towards debt but would like the flexibility just in case so..

The dilemma is knowing what to do with the £5500. Should we:

a) Pay off as much of the loan as possible and move remaining balance onto a credit card (with 0% til March '10)
b) Pay off the credit card? (which wouldn't reduce the £290pm cost)
c) Save the cash for the not so distant rainy day? giving us a buffer
d) Pay off some of the loan and keep the rest of the cash for rainy day? (which gives us a buffer but doesn't reduce the £290pm cost)

The normal answer to this would be to pay off as much as possible because there's not point having savings if you have debt. But given the credit crunch and jobs disapearing recently I thought I should ask the question...

Ummm help please :)

Cheers

Alan.

Replies

  • Jacks_xxxJacks_xxx Forumite
    3.9K Posts
    Hmmm... well it depends!

    Mainly it depends on your feelings and circumstances.

    If the peace of mind of having a little stashed in the bank as a buffer makes you sleep better at night it may be worth doing that - but if you have income protection insurance, or will get a sizeable redundancy payout if they let you go then maybe you don't need to do that?

    What's the settlement amount on the loan? It will be less than you still owe usually - or they may impose early redemption charges. (Banks are lovely like that. :rolleyes: ) Either way the exact figure would be useful. Is there PPi on it and will some of that be refunded?

    On the credit card front do you have PPi on it and what happens to the life of balance rate if you did lose your job and you missed a payment or made a late payment?

    Once you have all that info on hand I expect the way will be clearer.

    Love Jacks xxx :D
    Not everything that can be counted counts, and not everything that counts can be counted. Einstein
  • ah77ah77 Forumite
    6 Posts
    Hi Jacks, the final settlement figure we have on the loan is £6600, so it's about a £100 settlement charge.

    We have no PPi insurance of any sort; I've given up on that kind of insurance because jobs are secure right? :) well they used to be...

    For me it's definitely an emotional thing having the buffer but the thought of being down to around 6k of debt is also quite appealing as after 4 years of putting just about everything we have into debt it would be great to be so close to debt-free..
  • GeorgeUKGeorgeUK Forumite
    7.7K Posts
    Right, i'm going to throw this in a loop for you.

    What if...
    You were able to get a Virgin Creditcard whi is 0% for 16 months? You could transfer the money from this to your current account and use that to pay off the loan in full, along with part of the 5500 if required. The minimum payments from the 2nd month onward would be £25. Pay the remainder of the 5500 towards the creditcard and then pay the minimum to the virgincard with anything else going towards the old card. Once that is clear, continue paying £25 to the virgin card and save the rest in a high interest account. At the end of the 16 months, pay everything from the high interest account to the Virgin card and hopefully you will also have a little left over.

    ta-daa!
    After falling off the gambling wagon (twice): £33,600 (24,000+ 9,600) - Original CC Debt: £7,885.91

    Dad Gift 6k ¦ Savings & Inv Tst: £2,500
    Loan 10k: £0 ¦ Dad 5.5k: £2,270 ¦ LTSB: £0 ¦ RBS: £0 ¦ Virgin £0 ¦ Egg £0

    Total Owed: £2,270 (+6k) 11/08/2011
  • Jacks_xxxJacks_xxx Forumite
    3.9K Posts
    I know just how you feel hon.

    My Hubby has just been made redundant and we've been trying to decide whether to pay off our last remaining loan or hang onto the money "just in case".

    He doesn't get much redundancy money but combined with my "doing the house up savings" from working like a maniac over Christmas, and this months wages we might be able to do it if I can negotiate them down a bit more.

    PPi is often a really bad deal hon so don't feel sorry that you don't have it. I'm hoping to get big chunk of ours refunded cos it was mis-sold in the first blummen place.

    I'm so sorry not to be more help hon, it's a dilemma that's for sure.

    Hopefully we'll get some more opinions in a bit.

    Love Jacks xxx :D
    Not everything that can be counted counts, and not everything that counts can be counted. Einstein
  • Jacks_xxxJacks_xxx Forumite
    3.9K Posts
    GeorgeUK wrote: »
    Right, i'm going to throw this in a loop for you.

    What if...
    You were able to get a Virgin Creditcard whi is 0% for 16 months? You could transfer the money from this to your current account and use that to pay off the loan in full, along with part of the 5500 if required. The minimum payments from the 2nd month onward would be £25. Pay the remainder of the 5500 towards the creditcard and then pay the minimum to the virgincard with anything else going towards the old card. Once that is clear, continue paying £25 to the virgin card and save the rest in a high interest account. At the end of the 16 months, pay everything from the high interest account to the Virgin card and hopefully you will also have a little left over.

    ta-daa!

    :D :eek: :D :eek: :D Nice work George!
    Not everything that can be counted counts, and not everything that counts can be counted. Einstein
  • ah77ah77 Forumite
    6 Posts
    thanks, Jacks & GeorgeUK

    J: I hope all goes well for you given the redundancy; a scary thing right now.
    G: The Virgin idea could be a go-er so will look into it tonight!

    Alan
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