Keep ISA or pay off credit cards?

james_joyce

Hi

I'm new to this forum so apologies for posting a question straight away!

I have about £17k in a Stocks and Shares ISA but about £34k in credit card debts

I can manage the minimum payments on the credit cards OK and I keep the interest rates fairly low with balance transfers etc, so I reduce the debt by about £300 a month net.

Recently my ISA has gone up a bit with some (maybe temporary?) rises in share prices.

Should I cash in the ISA now and pay off half the credit card debt? Or should I carry on as I am, slowly reducing the debt until eventually the ISA is worth enough to pay off the remainder? Obviously if I cash in the ISA now I won't get the benefit of share price rises and I'll have too repay all the debt from my earnings.

Thanks in advance

GeorgeUK

Hi JJ - most first post are to ask questions so don't worry.

It depends on the interest rates you are paying on the cards - if you are making more that the APR on the cards then you should leave the ISA alone. If the cards have a higher interest rate that the ISA though, you are losing the difference by paying more out in interest.

So i guess it's a balancing act as to whether you think the eceonomy has recovered and will be a making a steady recover (albeit a slow one) or if you think you won't be able to keep getting BT offers it might be worth getting rid of some of the higher APR debt.

Are you using 0% creditcards or are you transaferring between existing cards and getting 6 months at 0% and low interest for life of balance deals?

It might also be worthwhile doing a statement of affairs and seeing if there are any other areas where you can make savings - have you checked the price comparison sites for your utilities and insurances?
http://www.makesenseofcards.com/soacalc.html

A spending diary may also be helpful to make sure there aren't any leaks in your budget.

james_joyce

Hi

Many thanks for the rapid reply!

I've just done some quick calcs - I reckon I pay about £200 per month in interest but there's also balance transfer fees to consider. I have about £5k on a cheap lifetime balance, and another £9k on high APRs, so the amount I do BTs for is the remainder, ie about £20k which costs about £1200 in BT fees every year, ie 3% every six months.

I can't get new 0% cards - I get turned down for having too much debt already! Obviously my ISA cannot be considered for credit purposes, which is a shame..I do BTs when my existing cards offer me a special rate, and as you say I can't rely on them doing that forever

So in summary I pay about £3600 a year to service a debt of about £34000, ie around 10-11%. Does that sound high? Certainly sounds like a tall order for share price rises to match that.

GeorgeUK

I work this out as 11.12% APR or an interest rate of about 10.6%
If you aren't making 10.6% on your shares each year, then you are losing money.

You can have about 3 credit checks in a 6 month period so you also need to bear this in mind when applying for a new card.

I take it you are paying the minimum on all cards and paying the extra to the card with the highest rate? This is the best way to tackle the debt - unless of course you have a card with a low balance that you may be able to utilise for another BT deal.

james_joyce

Thanks again, looks like I do need to sell up and cut my losses.

Obviously I need to pay off the 'more expensive £17k' of debts with the money from the shares, then commit a similar monthly amount to the total payments as before (about £500). And of course more of the £500 will be 'capital' and less of it 'interest' than before.

As you say I will prioritise those 'capital' payments to the highest remaining interest rate cards.

Re share prices and 10.6% a year. The problem is of course that short-term, share prices can do a lot better than the equivalent of 10.6% a year, eg 2% a month. So it is easy to get seduced/distracted. But I've been hypnotised by that kind of thinking for far too long!

I really appreciate your help in letting me see the wood from the trees on this.

GeorgeUK

I'd still keep a little back - just incase of emergencies.
Possibly some of the better performing shares that are still able to produce a dividend.

With clearing one of the higher APR cards, you may also be able to get more BT offers which would be great. I would recommend clearing Virgin if you have it - i've heard (and hope) they do quite good BT deals for existing customers.

james_joyce

GeorgeUK wrote: »

I'd still keep a little back - just incase of emergencies.
Possibly some of the better performing shares that are still able to produce a dividend.

With clearing one of the higher APR cards, you may also be able to get more BT offers which would be great. I would recommend clearing Virgin if you have it - i've heard (and hope) they do quite good BT deals for existing customers.

Yes I have got Virgin - over £8k on a 0.1% BT, 6 months, as an existing customer!

Obviously if I sell the shares there will then be an acceleration in the share price rises which have happened recently..but that's just Sod's law so I can't avoid it!

GeorgeUK

Thanks for the tip - i'll try to get some investment money together

It may still be worth doing a SOA to see if you can make some savings without too much effort though - even little things like taking a flask of coffe into work rather than buying latte's can make a big dent.

james_joyce

Obviously I'm the last person to be offering financial advice

MBNA are really good with BT deals in my experience. With both Virgin and Sony cards I have had several cheap BTs as an existing customer. My current Sony one is I think 7 or 8% on £6.5k

Thanks for the tip re the budget review. Someone suggested trying to pay in cash wherever possible, ie withdrawing it from my current account then seeing it being spent. Sounds a bit scary to me!