Can anyone see anything wrong with this cunning plan??

mountainofdebt

My son has come home from school today with news of a school trip to NY next year. We would really like for him to go - we've already told him that it will form a large part of his Christmas pressie if he does go - and so we would need to start saving for it.

I've estimated that we'll need to save about £20 a week and here's where my cunning plan comes in.

I have a Cahoot flexible loan with interest at 9.2% and I was going to make additional payments into this account to cover the cost of the trip and when the time comes to make payments to the school, withdraw the money from the loan account. As I can see it, this means I would be getting interest on this money at 9.2%.

However I realise that the monthly regular monthly payments for the loan would be reduced as the balance goes down but to counter act this I would ensure that the monthly repayments reflected the true balance of the loan account (ie I would pay the repayment that would have been due had I not made the payments that will eventually be used to pay for the school trip)

Can anyone see a flaw with this plan ???

esalan

A flaw? Can't say I follow your reasoning! If you have a loan then presumably you are paying 9.2% interest, not earning it? So how can you be earning money??? Apologies if I'm missing something here.

elona

I agree with esalan- unless there is something missing from the post, then it looks as if you will be paying extra rather than saving money.

mountainofdebt

Sorry if I didn't make myself clear - my reasoning is that with a cahoot flexible loan you only pay interest on the amount you have actually borrowed eg if I have a limit of £10000 and borrow £4000 then I only pay interest on the £4000 and pay monthly interest on the (decreasing) outstanding amount.

Thus my reasoning for thinking of doing this is that by making the additional payments into the loan account, the balance would be reduced by the money that I put aside for the school trip (which I can draw out) and as a result the interest that would be payable would be reduced.

My plan was also to work out what the monthly payment would be if the school trip money hadn't been put into that account and pay that amount so that I'm not in a worse position when I have to withdraw that money than I would be if I had put the money in a traditional savings account.

Does this make any sense or am I trying to be too clever and could get my fingers burnt?

zcaprd7

Sounds fine as long as the loan is flexible i.e. no charges


Instead of having cash sloshing around attempting to earn money you will be using it to temporarily off-set your loan.


EDIT: I would consider getting out credit cards on 0% deals to do similiar with?

mountainofdebt

No, there's no charges for making a withdrawal and the money is usually transferred to my current account within 4-5 working days so that I know I could write a cheque for the school trip when the time arrives.

Thanks !

thaylock

I see a fundamental flaw in this plan, don't buy what you can't afford.

Debt_Free_Chick

I assume you currently owe money on the Cahoot loan. So you are going to use the £20 a week to pay off this loan more quickly. In this way, yes, you are saving 9.2% interest.

However, once you draw off the money to pay for the school trip, you will then be PAYING 9.2% interest. And you'll still be in debt.

When I was at school, the trip was to Chedworth Roman Villa in Gloucestershire

Magentasue

I suspect that the OPer will go for it whatever is said. Once you've decided you want something you can always find ways to justify it - I am just as weak willed. BUT I'm also wondering ... if you can afford to pay an extra £20 a week of your debt, shouldn't you have been doing that? Would it be better to reduce your debt and then find a 0% interest way of paying for the trip?

mountainofdebt

Detfreechick/Magentasue........thank you for your comments. I know what you are saying and if anything you have pricked my conscience as to whether or not we can really afford it.

Nothing has been agreed or signed so we haven't yet committed ourselves to anything yet and in fairness to our son, he is a good lad (gawd I sound like Dot Cotton don't I !) and knows the score as far as money is concerned - far more than I ever knewabout my parents' finances I can assure you!

Since I found about this board last monday, I have been so much proactive in sorting out the debt that we're in.....money has been moved around onto lower interest rate cards and coupled with the fact that I have been doing a spreadsheet of our finances for only 2 months I do feel more positive that we can fill holes that we have all over the place. (Perhaps that's a dangerous thing I don't know!!)

As we haven't had the final details yet of the trip I've decided to pay £20 extra into the loan account. That way if we do decide to send my son I will hav already made a start to saving for it and if we don't, well at least then the money will have gone off to paying off the loan.

Magentasue

Well done, mountainofdebt! I was hoping I didn't come across 'holier than thou' - I know how difficult it is to break the spending habit!