Is it really better to pay off debt than save?

pinkfluffybabe

Hi

Am new to all this, hope someone can help me out with a question.

I am working out paying off my credit cards and have used the snowballing site to help me out with what to pay first.

However, when I try to pay off my debt on my cards, I run up debt by having to pay for things such as Christmas, holidays, birthdays and so on. Would it be better to put away say £25 a month in savings for these events rather than putting all my spare money to debt?

If not, then what do I do about affording the extra things like what I have mentionned?

Thanks
Christine

Shawz

Just my opinion but, when i had a lot of debt on cards/loans etc. I would save a little amount for birthdays, christmas etc and where possible bought cheaper presents and went and had holidays with friends in other parts of the uk so I could save money.
Basically pay as much as you can on the cards.

DaveK

Christine,

1) I'd get a 0% Credit card (lets say for 9 months) and balance transfer all my cards onto this.
2) Work out how much you pay curently for all your credit cards.
3) Now make your minimum payment the same amount as the current amount you're paying for all of your cards (which would have to be greater than 2% or so)

By doing this you'll start to pay a bigger amount off your current loan(s) meaning you'll be able to afford the extra for Birthdays/Christmas etc. at no cost.

It's always best to put the money into loans rather than savings. For example, I've actually put some of my mortgage on a credit card (on a 0% card and tarting between cards every 9 months or so), but by doing this I've knocked a year off my mortgage. If I had put the same amount of money in an ISA for 20 years I'd finish up with less than half of the amount of money I have saved by putting that in my mortgage.

Marketing_Monkey

I would say that generally you are better off paying off debt than saving due to the higher interest rates etc. One thing that I recommend however is ensuring that you always have enough in your current account to avoid bank charges for going over your overdraft limit - these charges are extortionate and are often over £30 per instance and can rapidly increase your debt. In these cases it is much better to keep some money back in reserve.

pinkfluffybabe

Thank you very much for your help. I am awaiting news on the card I have applied for.

Christine

Leia_Stephens

pinkfluffybabe wrote:

However, when I try to pay off my debt on my cards, I run up debt by having to pay for things such as Christmas, holidays, birthdays and so on. Would it be better to put away say £25 a month in savings for these events rather than putting all my spare money to debt?

I have the same problem, pinkfluffybabe, and I think it is a common one.

To make it easier for us MSEs to help you, could you post more details of your cards and debts, then we could give you more concrete suggestions.

We hope we can help

Leia

ceegee

As far as Christmas and birthday presents are concerned, you don't have to spend a fortune. I know it may sound tight, but just £5 (or even less!) can buy something nice if you think long and hard about what the recipient's interests and likes are. I would rather have a well thought out gift that costs £2.50 than something only so-so which costs £25. (but I am rather tight!)

dougk_2

Its a good idea putting money aside as long as you don't have the urge to spend it when you shouldn't!

My way of thinking is if you have debts that you pay interest on (with the exception of a mortgage) then you should cut back on everything.

If you really need a holiday you should consider a short city break 3 or 4 days. You can get some cheap flights (under £70 return for a couple including taxes) and a cheap 3* hotel (£25 a night) - You can easily make a trip away for £200 including some spending money.

For Birthdays and Xmas be a bit tight and just spend on imediate relatives. Eg Brothers/Sisters, Parents and Granda Parents.

pinkfluffybabe

Leia_Stephens wrote:

I have the same problem, pinkfluffybabe, and I think it is a common one.

To make it easier for us MSEs to help you, could you post more details of your cards and debts, then we could give you more concrete suggestions.

We hope we can help

Leia

Ok, current debts:

Egg Loan - £6517.51 6.9% (set payments of £300 per month)
Egg card - £1296.54 APR 14.9 %
Egg card (Blue) £574.47 APR 13.5%
Lloyds Platinum £1450 APR 0% til May then 13.9%

I have applied for the Texaco card for the life of the balance and am awaiting a response. I cannot transfer between Egg Cards.

I have £150 a month to put to the cards per month. I have also pencilled in £75 for saving each month for stuff like car insurance, etc. Otherwise I would need to put them on my cards and end up in more debt again.

I am Ok in terms of paying the debt off its just paying for the one off things such as car, etc in the meantime.

Any other help would be appreciated.

Christine

nearlyrich

[QUOTE I have also pencilled in £75 for saving each month for stuff like car insurance, etc. Otherwise I would need to put them on my cards and end up in more debt again.
[/QUOTE]

This is a sensible thing to do, car insurance is one of those expenses which sneak up and ruin your cashflow if you haven't accounted for it in your budget.
Have you done a budget? see here for the MSE spreadsheet it's great.

Darryl

What are your credit limits on your cards? It maybe better to BT your Egg card debts on to the Lloyds Platinum card for the next 2 months, if you can.

Then cancel one of the Egg cards and try to apply for a MNBA card with 6 or 9 months 0% BT deals, and then BT the Lloyds Platinum card debt to the new card.

Putting savings away for insurance, Xmas, etc is a good idea. But, as others have said, try and keep these amounts as low as possible.