Need Advice on Debts and Inerest!!

lazy&indebt

My original debt free plan was to put all of my spare cash into an ISA to save up to pay off my credit card (currently on 0% until NOV then on 1.9% until APR07) and my loan, which I cannot make overpayments on. I figured that I may as well earn interest on my savings and then use them to clear my debts. It also worked out quite well this way because by the end of the current tax year, I would’ve saved my £3,000 tax free allowance.

However, due to me getting a part time job recently, I will be saving at about twice the rate I was, meaning I will hit my £3,000 allowance in November (which is also enough to clear off my card – the balance will be about £2290 by then) my dilemma is, do I withdraw the amount to clear my card in NOV and loose about £70 interest, or do I leave the £3,000 in the bank until the end of the tax year to gain that extra £70 and then pay off my card?

Either way, I will have to open another savings account when I hit my £3K as I will then be taxed on the 4.75% interest (may as well find a high interest regular saver’s account!)

Can anyone help?

KatrinaC_2

lazy&indebt wrote:

my dilemma is, do I withdraw the amount to clear my card in NOV and loose about £70 interest, or do I leave the £3,000 in the bank until the end of the tax year to gain that extra £70 and then pay off my card?

Personally I'd just pay off the card in full in November. By the time you take into account the interest you'll be paying on the lower rate over the four months you're not going to be saving all that much. If you pay it off early you'd get the peace of mind and I'd be willing to pay the additional £50 or so for that!

Kat

dang

If you cannot make overpayments on your loan,i would keep paying the min on your card until Apr 07 ( or whenever the rate goes above 1.9% ) then use the money from your new savings account (icici is a good one) to pay off your card, if you cannot pay the full amount from icici (or which ever account you choose) then take the required money from the isa,leaving the rest in there to continue earning tax free interest.

Then i would carry on saving in the isa towards your loan repayment.

Regarding your loan repayment,it maybe worth looking into the regular saver accounts as a way of saving rather than the isa - for example if you started the a&l regular saver it pays 10% on monthly savings £20 - £250 (i think) so after tax you are making 8% rather than less than 5% on your isa.You do have to pay a set amount every month though.

KatrinaC_2

I've just put the numbers into a spreadsheet and worked out exactly what repaying the card in April would be as opposed to paying it off at the end of the 0% period in November.

You'd get the extra £70 in interest on your savings, but assuming that you're paying off the card at 2% per month it will cost you £22 in interest on the card.

In total you'd be saving £48 by paying it off later.

Kat

dang

"I've just put the numbers into a spreadsheet and worked out exactly what repaying the card in April would be as opposed to paying it off at the end of the 0% period in November.

You'd get the extra £70 in interest on your savings, but assuming that you're paying off the card at 2% per month it will cost you £22 in interest on the card.

In total you'd be saving £48 by paying it off later.

Kat"


But paying it off in April would also put you in a position where you could have more money in your isa,rather than in a standard savings account - once you use your yearly £3000 you cannot redeposit.

Hereward

Personally I would continue to save in the ISA until it has been filled. When the ISA has been filled I would reallocate the amount I had been saving to pay off the CC debit (leaving the money in the ISA untouched). This way I would get the benefit of earning interest on the ISA and reducing the amount of interest paid on the CC (and, hopefully, reducing the CC debt to £0).

lazy&indebt

Thank you all for the advice! Much appreciated!