Pay Off Debts With Savings Article Discussion Area

vintage65

ive been struggling with debt for years. I dont know if ive done the right thing, but I got a £20,000 loan put on my mortgage to pay off my credit cards, car and other loan. It works less than paying them all individually. With the little extra money I'd like to put it towards my mortgage but the extra money just seems to disappear! However, I do feel better that its all one payment now. I enjoy reading what you all have to say, its very positive and helpfull. Thanks

Karmacat

vintage 65, I can't recommend strongly enough that you have a read a bit closer through the threads on the dfw board, and look at:
- making a statement of affairs, a listing of everything you pay, absolutely everything.
- check out how to overpay that loan.
- look at earning extra to pay it down.

lizbath

Hi
i have savings in isas but recently keep on geeting over drawn ...am i right in thinking i should draw money ot of my isa to pay off my overdraft to get on even keel??

fastchris1

Hi,

originally posted this on the Mortgage part of the forum, but advised to post here instead, so.................


I am about to inherit around £80-85K and naturally the first thought was to pay off bank loans, credit cards etc, which will amount to a saving of around £600 per month. I have a interest only mortgage of around £157K and this is supported by ISA's to pay it off in or around 2017, but I think with the current amount of money thats being put into it, wont happen.

I am considering a number of options and would appreciate some advice:

1. With the £600 a month free should I use this to overpay the mortgage (all fixed terms have expired and now on variable rate)? -Decision made by brain.

2. Should I use the remaining amount of inheritance to reduce the mortgage and change from an interest only to repayment one?- Decision made by brain.

3. Purchase more ISA's and increase the ones i do pay into?- Decision made by brain.

4. Use the inheritance to take the family on a holiday abroad for the first time in 8 years, indulge my passion and buy a peformance car (spent years with the family car and kids have grown up now), basically start enjoying life with my wife, now the kids dont need us any more?- Decision made by heart!

5. Dont pay off the mortgage, but pay off loans etc, stick the rest of the inheritance on deposit

6. A combination of 1-5?- On the fence with this one!

All of above are not necessarily in order of preference!

Sounds mad I know, but never had this sort of cash to myself before as always struggled from one month to next for year after year, and now there is a chance to be semi-secure financially for my family and I, I have no idea which way to go


Many thanks

Melody123

I have a ten year loan at 5.75% so I thought it would be obvious to pay it off as I have got enough in savings. I have paid for about four years so there is a lot left to pay. But when I checked the settlement figure it shows that the amount of interest you pay each month is much higher at the beginning reducing every month to virtually nothing near the end. So in less than half the term I have paid much more than half the interest. If I pay the balance off I will save the future interest but it is not that high. I worked out that if I keep my money in a reasonable savings account I will earn more interest even after tax than I will save by paying off the loan. Plus I get the flexibility of already having the money and not worrying about maybe getting a loan later should I need it. The only drawback is trying not to spend it.

MSE_Martin wrote: »

Hi folks

Thanks for the replies. I thought I would add a few comments - as I think there's a little bit of confusion between what's written here and what's actually contained in the article....

1. It's ok to keep a few hundreds in savings if you know what they'll be spent on.

Actually I disagree, you may as well pay off any expensive debts in the meantime and borrow the cash back when you need to pay - saving yourself the interest payment in the interim.... unless that is your debts is as follows

2. The exceptions

In the article there were two key exceptions to the theory. The second is the following

It's this bit that's confusing people I think a few of you scanned past this when you read.

Of course if your debt is at 0% then the need to repay it isn't there. Thankfully most people here have used all the other techniques on the site and now have the discipline to do this. Yet remember most people still pay interest on their debts and do it at high rates. They also grab a 0% card than forget it and let it go back to the go to rate.

However I may go in and tweak this bit to make it a bit more detailed - as it seems to be the bit that's missed.



3. ZTD - banking explanation.

No I think i'll leave the massive complexities of fractional reserve banking for now. And my explanation missed out much more than that - the cost of branch and admin systems - interbank borrowing - etc before we even go there.

That's why I started it, ""Put most simply", its understanding the essence of banking that's important here. The most important bit is that when you save with a bank you are effectively lending it your cash.... that's what people need to get

Hope this is useful

Martin

Melody123

I have a ten year loan at 5.75% so I thought it would be obvious to pay it off as I have got enough in savings. I have paid for about four years so there is a lot left to pay. But when I checked the settlement figure it shows that the amount of interest you pay each month is much higher at the beginning reducing every month to virtually nothing near the end. So in less than half the term I have paid much more than half the interest. If I pay the balance off I will save the future interest but it is not that high. I worked out that if I keep my money in a reasonable savings account I will earn more interest even after tax than I will save by paying off the loan. Plus I get the flexibility of already having the money and not worrying about maybe getting a loan later should I need it. The only drawback is trying not to spend it.

tonybonus

i have a small pension ,and iv just turned 50.would it be a good idea to take the 25% add abit moreto pay off my 6000 pound mortgage .my pension is only worth 17400 pounds at the moment

Vixstar69

HELP! I graduated 3y ago and have followed the advice to save my money rather than pay off my student debt so I have now saved approx £10,000 which I would like to put towards buying a house in a few years. However, my student debt is £20,000 as I was at Uni for 5y, last year the interest on the debt was £722 whilst my savings only gained me £250. This year I have moved to a higher rate ISA but what am I doing wrong?! I don't want to use all my savings to pay half my debt but should I pay off more each month or pay off a proportion with a lump sum???
Any advice would be greatly appreciated! Thank you!

ricko81

OK here's one.

I have debts of approx £6000, paying off at a rate of about 6% over the next three years.

I also have savings of about the same, about £6000, in an ISA, not earning as much as 6%

While Martin's arguments logically point towards clearing the debt, I am trying to save to put down a deposit on a house. I have been saving for nearly 3 years, and hope to have about £10k by 2011.

If I pay off my debt, I will be back at square one, and this means that it will probably be 2013 or 2014 before I can gather up enough again to put down on a house. And my future wife won't want to wait that long!

Please advise, because I don't see any better way to do it than I am doing it right now.

Thanks

miket1964

Hi

I have submitting this thread elsewhere. So will keep it short

I have around £15K of debts, which I am struggling with.

I have three endowments policies that are no longer linked to my mortgage, gone to a repayment after the shortfall notices indicated that they were not going to repay the mortgage
I was keeping the endowments as a savings plan, but I have enquired that the surrender value will be enough to pay off me debts.

Is this a good or bad idea?

Regards
Mike