Pay off debts with savings?

finallydebtfree!!

i have recently paid off my personal loan balance of £2000 with my savings which has left me with £800,

what I have done is the money that I used to pay out on my loan I am putting straight into my savings account I now have £1300 in my savings already after a couple of months!

my theory is that I wouldnt of had the money if I was still paying off my loan so I cant have it now! I have lived without that extra money throughout the 4 years I was paying off my loan so I can do without it now (just about!!)

Phoenix79_2

I'm in the same situation (as you can see by my sig). I just can't bring myself to use my savings to ovepay on my loan. I'm hoping to get at least £7k off my loan onto my MBNA card at 0.9% apr. That'll be a step in the right direction!

tyllwyd

How far off are you from buying a flat - is it something you plan in the next few months, few years or few decades?

If you want to do it sooner rather than later, then there is some logic in keeping your money free for a deposit. But if it is just a vague hope some time in the future, it probably makes more sense to pay off the debts now (unless you can get a 0% balance transfer) and then concentrate on building your savings back up.

Rgc_3

Phoenix79 wrote:

I'm in the same situation (as you can see by my sig). I just can't bring myself to use my savings to ovepay on my loan. I'm hoping to get at least £7k off my loan onto my MBNA card at 0.9% apr. That'll be a step in the right direction!

We get it drummed into us from a very early age that saving money is a good thing to do(and of course it is)so whjen it comes to advice that appears to turn this on its head we struggle with the concept of losing our security blanket in savings....the maths clearly state to clear the debt with savings but if someone finds it too hard then its better they work to a workable plan that keeps the debt going down

The maths is very simple but the part of the equation missing is the human factor!!!

ps
I personally think a small emergency fund is a good idea but paying the debt off with savings makes good sense

Phoenix79_2

Rgc wrote:

We get it drummed into us from a very early age that saving money is a good thing to do(and of course it is)so whjen it comes to advice that appears to turn this on its head we struggle with the concept of losing our security blanket in savings....the maths clearly state to clear the debt with savings but if someone finds it too hard then its better they work to a workable plan that keeps the debt going down

The maths is very simple but the part of the equation missing is the human factor!!!

ps
I personally think a small emergency fund is a good idea but paying the debt off with savings makes good sense

I hear what you are saying and in my head I know you are right.....but try telling that to my heart!

The £7k Super BT from MBNA coupled with my savings (got an extra £250 going in next week) would clear my loan and would leave me with a practically interest free debt.

I've got some thinking to do......

Rgc_3

Phoenix79 wrote:

I hear what you are saying and in my head I know you are right.....but try telling that to my heart!

The £7k Super BT from MBNA coupled with my savings (got an extra £250 going in next week) would clear my loan and would leave me with a practically interest free debt.

I've got some thinking to do......

Exactly why i call it the head n heart decision

best of luck whichever way you decide to go with it:beer:

piglet6

Agree with what everyone above has said. Basically, if your apr on the loan/cards is higher than the apr on the savings account, then it makes sense to pay off the debt first. However, I am like you in that I like a saftey blanket of some savings "in case of emergency".:o I finally persuaded myself when it clicked that if I paid off the card (to avoid silly interest rates!:eek:) using my savings, in the case of a genuine emergency, I could always re-use the card because it would have "space" on it.:rolleyes: Suddenly, it didn't seem so scary to not have savings, because I still had a safety net of a credit card... However, as an added bonus, I found that knowing the extortionate interest rate on that card really helps put "emergency" into context - true emergencies don't crop up as often as you'd think!!:p

Of course, if you can manage to tart your debts on 0%, then by all means build up the savings and just pay off the minimum amount each month!:D

Piglet

Phoenix79_2

Rgc wrote:

Exactly why i call it the head n heart decision

best of luck whichever way you decide to go with it:beer:

I think i'm going to use my savings to lower my debt. I have always got my credit cards in the event of an emergency (got about £25k available credit so that should cover 99.9% of things!)

lipidicman

Phoenix79 wrote:

I think i'm going to use my savings to lower my debt. I have always got my credit cards in the event of an emergency (got about £25k available credit so that should cover 99.9% of things!)

EXACTLY! you will be using the same products in a more sensible way.

Repaying will improve your credit score too

Finally, pretend you still have to make the repayments - but make them to YOURSELF (ie into your savings account) and then forget about the money! When you have done this, pat yourself on the back.

tomstickland

It's just an illusion to think "i have £8K of savings" if you also had an 8K debt.
Your total real savings are the savings minus the debt.
Then it's just a matter of looking at the interest rates.
If the "savings" pay more than the debt then that's good. If the debt costs more than the savings pay then that's bad.

I stooze money, which is in effect making a debt on 0% credit card so I can benefit from the better rate in a savings account.