Is it right to have no savings to pay off debt

Beatle_Ray

Hi All,

I owe about £30,000 on credit cards and have about 1/2 of that saved in an endownment policy, should I sell the policy and pay off 1/2 the debt and then have no money to fall back on, I realise this is Martins advise but it is a life times savings but I fell if that I dont sell it I have no way off reducing the debt for a very long time, + I can always build it up again.

Please share your thoughts.

Dell Boy

furndire

One thing is you'll save a lot in interest each month, but only if you cut up the cards!!!!!!

SunderlandBlackCat

If the endowmwnt is close to maturity it may be worth hanging on but generally you will be paying out more interest on your debts than you will be earning on your savings so it makes sense to use it to pay off as much debt as possible to minimise the amount of interest you pay out.

Idiophreak

Also, at the risk of sounding negative, should you become unemployed etc, your savings could harm your chances of getting benefits etc, so I'd pay off the debt.

edit: I'd suggest however that you try and get yourself a bit of space on a credit card - just so that if the worst happens you've got something with some space to spend into.

immoral_angeluk

To me savings are a waste when you're in serious debt. I personally think you should pay it off the credit cards and as someone else has said you'd save yourself a fortune in interest every month, but if you kept up the old minimum payment amount on the new balance you'd soon eat in to the remainder.

pollyanna24

It's so much harder to let go of savings than it is to use cc isn't it? It is nice to see money sitting in a bank account, but at the moment, me and bf have none. This is a bit worrying, but we are almost debt free thanks to this and are overpaying on the mortgage. Once the cc has gone, we will start saving slowly, but surely.

Bargain_Rzl

I definitely think it's worth having a few quid put aside for emergencies and short term savings each month, even if you are in debt.

Mind you, I suppose it depends on the type of debt. If the debt is on credit cards, there's no real point having a cash emergency fund as if something major comes up (the washing machine dies, for example) you can just stick it on the credit card and your debt repayments will be set back a little bit but you can carry on repaying as before.

If you have debt solely in inflexible loans, I'd argue that it was very important to keep some form of emergency fund. Ideally this would be a credit card so that you're not withholding your own money from debt repayments - but if you can't get one, or can't trust yourself with one, some kind of fund in a savings account is probably a really good idea. What I'd do in this situation is, pay into the account on a monthly basis (let's say £25 a month) but if the fund ever gets to an agreed figure, say £500 or £1000, without being used, I would stop paying into it until such time as it did get used.

To the OP - as others have said, it is possible that your endowment is worth holding on to if it is shortly to mature. But otherwise no. If I had £30k debt and £15k savings, I'd want to offset as much of the savings as possible against the debt. If I were you I'd cash in the endowment, keep £1k as your emergency fund, and use the rest towards the debt. Think how much less interest you'll pay!

(The exception to this would be if all of the £30k was at 0% interest, in which case I'd leave the endowment where it is - however Idiophreak has a very valid point about eligibility for unemployment benefits).

tyllwyd

You should do your homework before cashing in your endowment, to make sure that you are very clear about how much you will get back and how much you could be potentially entitled to if you kept it on.

Do you have a family? You might need to replace the life insurance element of the endowment.

One factor to consider is why you took out the endowment in the first place - was it to pay off a mortgage? If so, have you got a plan for how you will replace this money?

Beatle_Ray

Thanks for all the replies, considered having £1000 as an emergency fund but as others have said it does seem a little pointless.

As far a s the endownment goes it is at year 14 of 25 so some way to go, it was orginally to pay off the first mortgage but I changed that to a repayment one about 4 years ago and just kept it on as a savings plan.

Looking to sell it at the moment, I contacted AAP but they have no come back to me yet despite saying it would only take about 48 hours.

I Think the savings have been an emotive tie rather than anything else.

Please confirm I'm doing the right thing here since I'm being very indecisive

Beatle Ray

beanielou

At the end of the day only you can deceide.

Acc72

tyllwyd wrote:

You should do your homework before cashing in your endowment, to make sure that you are very clear about how much you will get back and how much you could be potentially entitled to if you kept it on.

Do you have a family? You might need to replace the life insurance element of the endowment.

One factor to consider is why you took out the endowment in the first place - was it to pay off a mortgage? If so, have you got a plan for how you will replace this money?

This is very important to your specific circumstances.

My opinion on debt / savings is that what is the point of having savings when you have got debt.

You don't need an "emergency fund" - if something happens then people can quickly access funds.

These days, the problem is not how to access money but how to pay it back !!

However, this depends on the individual - if by paying of all CC debt they will be tempted back to borrow more, then there is no point paying them off in the first place !!