Should I throw my surplus income at my debt?

Little_Miss_Uni-Debt

Hi all, bit of a daft title - I know!

Here's the query, they say you shouldn't save while you're in debt - fair enough. However I changed jobs at the beginning of the year and took an I.T contract, (something I had wanted to do for a while) It was a big increase in wages (for the first time ever!) I had nearly 9 weeks without wages before my new income started to come in and I kind of went through the buffer I had built up, now that income is filtering through over the next few weeks I've got a lot of back pay owed to me.

Now I'm finally back in a position to throw money at my debt again I'm worried that I should hold some back for emergencies especially as we've had several big clients (we deal with schools) not renew their contracts with us over the last few weeks due to the proposed cuts in spending on ICT in schools and associated government changes.

My contract is up for renewal every 3 months and has recently been re-newed, so technically I have work until end of July but if work reduces drastically then it's a bit of an uncertainty. There's nothing stopping me being given a weeks notice.

I just don't want to be in a position where I make in-roads to my cards and then find out I need to magic a month or two's bill money (or longer!) from no-where while I find a new job. As we all know what damage that can cause!

Should I attack my cards while employed with the same enthusiasm or prepare myself for the worst then pay off by lump sum when I know more?

I had an interview for a job that's 4mins from home last week and would be perfect but I don't want to just jump ship for nothing. I'm hoping to hear the outcome of the interview in the next 2 days.:eek: It would save me over £200 pcm in petrol!

Any thoughts appreciated! I don't want to kick myself for not acting.

tbourner

I'm in a similar position, thinking I want to pay off my overdraft before my credit card for example so I've got some 'space' in the bank if I need it. But at the end of the day the interest on the CC is higher than the bank account, so I've now realised I should pay as much as possible into the highest interest account.

If something happens where you need cash you'll have space on your cards or at least better credit to borrow again, but it probably won't be necessary and you'll be glad you've paid off the debt rather than saving in a low interest account.

Happytogetdebtfree

Hi miss uni, i dont know what to suggest, maybe do 75% debt over pays and 25% saves just incase of split it 50- 50 and assume the jobsyours, its hard to pay all excess on debts because you leave yourself short, good luck either way xx

Smallfries

personally i would save it to a certain amount, say 2k then i would spend 1k on debt, save up to point and then repeat. that way, you keep your back up plan and can reduce debt quickly

DVardysShadow

Smallfries wrote: »

personally i would save it to a certain amount, say 2k then i would spend 1k on debt, save up to point and then repeat. that way, you keep your back up plan and can reduce debt quickly

Yes, I would go with that. It is a bit like playing musical chairs in that while you can see you have a chair [or work] ahead of you, you can relax [and pay off debt], but as you come to the renewal of contract, you need to hold off on debt repayment and save, but a lump can go back to paying down debt as soon as the contract si renewed.

tbourner

Surely if all the debts are credit cards it's still better to pay off as much as possible each month? Leaving you with nothing spare? If the boiler breaks or you do in fact lose your job you can just start spending on the card again, if you don't lose your job and your boiler doesn't break you've saved a big chunk of interest. There's no risk involved?

Bloomberg

tbourner wrote: »

Surely if all the debts are credit cards it's still better to pay off as much as possible each month? Leaving you with nothing spare? If the boiler breaks or you do in fact lose your job you can just start spending on the card again, if you don't lose your job and your boiler doesn't break you've saved a big chunk of interest. There's no risk involved?

Sound advice:

Little_Miss_Uni-Debt

Hey,

Thanks for the comments, they're very useful. I know it sounds straight forward to just pay cards off and if the worst happens I can spend on the cards again, however my cards are all at a reasonable purchase rate and if I needed to pay for rent/bills etc I'd need cash.

To get cash from a credit card would be at a crazy rate and would hike up the interest that I pay each month. It would almost double the amount in interest.

There have been some good suggestions. It's so confusing getting paid weekly! I think I might start saving until the end of the month and pretend that I get paid monthly.

I think I will save £1200 (3 months rent/bills/expenses) then start to pay off cards again. I'll feel safer that way knowing I've got a bit of room.
Then when I get down to £800 left on my cards, I can pay it off in 1 chunk and 'hopefully' leave £400 in my account.

Does anyone have any good tips for managing on weekly pay? Do people pay a certain amount out of it each week or do you let it accumulate? My wages are different each week! Oh how I miss my structured/regular wages!

stealeruk

As most people that contract will tell you, give yourself a buffer. Service the debt you have to the best of your ability but build up a reserve tank to tide you over between contracts should yours come to an end. Stockpiling about 6 months "wages" would be a good start. If you spend all your existing income servicing your debts now, you'll only have to borrow again should your contract end and you have no savings.

Lucifa73

Hi - personally I would build a buffer, as you suggest. Would it be worth using an instant access saver to stash a buffer (your £1200), taking it out of your normal current account and the capacity to spend it on a debit card?

Sounds like you've got your head screwed on so I'm sure you'll be fine;)

tbourner

Little_Miss_Uni-Debt wrote: »

Hey,

Thanks for the comments, they're very useful. I know it sounds straight forward to just pay cards off and if the worst happens I can spend on the cards again, however my cards are all at a reasonable purchase rate and if I needed to pay for rent/bills etc I'd need cash.

To get cash from a credit card would be at a crazy rate and would hike up the interest that I pay each month. It would almost double the amount in interest.

Fair enough. In that case I'd say as mentioned before build up a buffer that will give you enough room to survive for a set amount of time. I use a month but you may have to have a longer term in mind (for example I have 4 bank accounts, we try to keep 1 months payments in our 'bills' account at all times, so we top it up to 2x the amount each month and then it drops down to 1x as the payments come out). You'd have to calculate all this though and work out how much you need to save for say your £1200 3 months of payments.

As an aside it might be an idea to open some more bank accounts. I find it much easier to budget doing it that way. Pay goes into account1, standing order from that account into a bills account for the amount each month/week. Standing order from account1 into a shopping account for spending each week. Standing order from account1 into a savings account that once it hits a figure you've worked out, anything above that goes onto your debts?