Pay off debts with savings?

tommi26

Hi there

I stumbled across this site a few weeks ago and been impressed with the amount of ideas and tips that people have.

Can I get your points of view regarding my debt.

I have 2 credit cards
1) Virgin that i use for purchases like flight tickets, clothes and try and clear most of it monthly - balance of £550
2) Halifax - dont touch at all but has a balance of £3000

I also am trying to save money for a deposit on a flat and have saved £3800 so far.

I was wondering whether i should pay off all the outstanding Debts

the options that i can see are
1) Pay it off off in one - leaving me with little savings
2) Pay £1500/2000 off the Halifax
3) continue as i am

any views would be greatly appreciated

Tom

lipidicman

What are the rates on those cards? Standard or some sort of low rate (Life of Balance or 0%)

Me, I would look to get your debt onto 0%

The rate on the cards is likely to be higher so paying off the debt makes sense but not if you need the savings for something (like really need, otherwise not paying off your debt is irresponsible)

Rgc_3

Its a head n heart one...its better mathematically to pay off the debt unless they are 0%

I think id feel disheartened to lose money saved for flat

why not meet in the middle

clear smaller card from savings... then 0% the other card by tarting....snowball the money left spare from smaller card and pay off card and save at the same time

lipidicman

Rgc wrote:

Its a head n heart one...its better mathematically to pay off the debt unless they are 0%

I think id feel disheartened to lose money saved for flat

Building up high apr debts when you could have spent money you have been squirreling is fooling yourself. You haven't really been saving as much as you think. The damage is already done, putting it right by paying it off will make the best of a bad situation

Rgc wrote:

why not meet in the middle

clear smaller card from savings... then 0% the other card by tarting....snowball the money left spare from smaller card and pay off card and save at the same time

The problem with 0%'ing it is if the OP isn't canny like a stoozer then they might just be tempted to rack up a bit more debt

richardvc

If I remember correctly Martin's book, The Money Diet, always recommends paying the debt off first from savinga as it is cheaper in the long-term.

Please correct me if I'm wrong though !!

David_B_2

Good advise above.

The rule of thumb is that you should'nt have savings if you've got debts. i.e what ever your gaining on savings you'll be paying more interest on the debts and therefore losing out.

If it was me, I would either move debts to 0% as mentioned above or wipe out all the debts with my savings and use the monthly repayment cash saved to build my savings up quicker.

rjm2k1

I think that your debts would be taken into account by any mortgage company anyway when they assess what they will lend you, so may make sense to get rid of them.

dinkylou

I would get rid of the Halifax with most of your savings. I know its a pain, but then you can save up faster.

Then clear your Virgin card and cancel. If you are paying on card to get cashback each month then there are better cards out there for this. (see Martin's article.

Set yourself little goals and challenges to save up the deposit again and you'll find that you'll save the money faster. Use things like quidco/mystery shopping/ebay etc and you'll soon have that deposit.

climbgirl

From a strictly financial sense, it doesn't make sense to have savings if you have debts (assuming that your savings interest rate is lower than the APRs on your debts. Which it is in most cases). However, some people do feel "safer" with some emergency savings in case the unexpected arises.

In your case though, given that you're saving for a house deposit, I think you should put the whole lot on your debt. If you're going for a mortgage then any debts you have will be taken into consideration. They're going to have to go at some point before you start applying so it might as well be now! Leave yourself a small buffer if it makes you feel more comfortable!

nrsql

You may think you're saving money but what you're actually doing is putting money from a credit card into a savings account.

If you had £250 savings and no credit card debt at the moment would you add the extra £3,550 to the savings account from credit cards?

And look at the credit card payments you are making - that's the extra amount you could be saving to add to the £250 (and not giving it away in interest payments).

Rgc_3

lipidicman wrote:

Building up high apr debts when you could have spent money you have been squirreling is fooling yourself. You haven't really been saving as much as you think. The damage is already done, putting it right by paying it off will make the best of a bad situation

Exactly what i meant by it being a head n heart decision .






The problem with 0%'ing it is if the OP isn't canny like a stoozer then they might just be tempted to rack up a bit more debt

Of course thats true but OPs objective is to pay off debt and save for a flat and its one option to consider.