Advice for a lurking newbie please!

suziebeau

Hi everyone, although I haven't posted before I feel that I know you all already! I've been following your advice here for 2 yrs and am nearly, nearly, nearly out of the debts I built up taking a year out for maternity leave, and returning to work part time, yet continuing to spend a full time salary :eek:

I've got £1,265 left to pay off to Egg, BUT I would dearly love to start building up some savings again. Which would you do, put all you can into paying off the final debt or go more slowly and start saving at the same time?

1 other query, my husband is self employed and our income is vary variable. Some months we finish in profit, other months we about break even, but quite often we dip quite a long way into our overdraft. Given that we don't have any savings to speak of (yet) is there a more cost effective "buffer" we could give ourselves towards the end of the month?

Thanks everyone........

Suzie

DarkConvict

Interesting question.

The obvious answer is always pay debts before you save, because debts cost more than interest on savings.

But in your case your lack of savings, although i would call it a running balance personally for a current account is causing you to go into the overdraft and incur charges. But the question is what is the rate of interest on the overdraft against the credit card.

If the overdraft is 10% and the CC 15%, carry on paying off the card.

If however the overdraft is 10%, but you exceed it and get unauthorised overdraft charges, then you do need a buffer in your current account to stop you dipping into it and racking up charges.

The only problem with buffering a current account is that you may without realising spend the money in the current account and need more funds added again to prevent you hitting the overdraft. I.e. You do not break even on a month and it just eats up the money in outgoing costs, or you see something you want to buy and you have a "good" balance so spend more money and you usually would.

P.S. An overdraft charging £1 a day for its use rather than a standard APR, is equivalent to about 35% APR. (I think)

suziebeau

Thanks, at the moment am paying slightly more interest on the card than on the overdraft, as we have never exceeded our limit (mainly cos the bank set it stupidly high when we were both on full time salaries). Your point about the pitfalls of using your savings to "buffer" a current account is an interesting one. Possibly it's not the right thing for us, as we both have a tendancy to "treat" ourselves (fighting it, honestly!) so we could probably easily spend our "buffer" and be back to square one!

Verbatim

Would having any savings in a separate account help? Psychologically the money wouldn't be "available" and wouldn't be showing in your current account, but could be transferred the same day by internet banking if necessary, mostly even from other banks nowadays.

DarkConvict

Verbatim does give a good compromise.

Keep a set figure of money in savings, whenever the overdraft is getting close you could switch it over to cover it, but remember to repay back into savings the same amount. Start with £400, boost it back to £400.

Although if the overdraft costs less than the credit card, continue to hammer the credit card. See it as you pay £200 on the CC, saves you £30 in interest, pay £200 on the overdraft saves you between £0 (in credit) to £15. Either way, covering the overdraft leaves you out of pocket compared to the credit card.