Credit Card Payment Vs Savings

Rising_Phoenix

I have a small amount of savings tucked away (c£700) which I accrue each month for various one off payments I know I will have to make throughout the year (car tax, service, xmas etc etc) I also have credit card debts of £6258 of which £3738 is on 0% interest. I am cutting back and reducing this debt as a number 1 priority.

My question is, would it be beneficial to use my savings to make a payment off the CC which is currently attracting interest (17.9%) in the knowledge that i WILL need to spend the majority of that amount throughout the year. Obviously I will make a saving on the interest charged to my CC account however the furutre payments would then need to be made on a CC, at 0% initially but then later (potentially) incurring interest when the 0% offer ends.

Thanks in advance - I've been a long time reader and many of your posts have inspired me to take control of my finances and plan for the furture.

CLAPTON

yes of course use the money to pay off the CC;
you are earning max of 3% on your saving and you are paying 17.9% on your debt;
it may be bext to keep a small float for things that must be paid in cash but that depends upon your circumstances.

Rising_Phoenix

Thanks Clapton, that's as I thought although a slight concern would be if my CC provider reduced my credit limit when they see I am not regularly spending on it.

YorkshireBoy

Rising_Phoenix wrote: »

...a slight concern would be if my CC provider reduced my credit limit when they see I am not regularly spending on it.

Unlikely. What's more likely is they'll cut the limit following a significant payment if you've a poor credit rating in general and you're maxed out on this card.

What's the credit limit?...anywhere close to the c£2.5K debt?

fracturedsun

Whilst putting this money to your credit card would save you money. I would be cautious about using all your savings, credit card limits can change and having some gaurunteed money available is a good idea. Unless you are very sure that they won't decrease your limit, I would use most of it towards you credit card but leave enough available for at least the 1st of these payments so if they do decrease the limit on your card you have some time to save before the following payment.

But then I am paranoid... I've been debating paying off the rest of my loan but that would nearly wipe out my savings and I only have a temporary contract at work.

Rising_Phoenix

Cards are as follows;

HSBC (new account to balance transfer as much as possible away from Barclaycard)
Balance: £3588
Limit: £3750
Interest: 0% 23 months

Barclaycard (The account is closed due to me declining an interest rise)
Balance: £2520 (revised from OP due)
Interest: 17.9%

NAT WEST (new card - awaiting receipt)
Balance: Nil
Limit: £600
Interest: 0% 15 months

Credit history is excellent (no missed payments or defaults etc) however I do have a high level of borrowing due to car finance and a personnel loan. I am able to fully cover all the repayments so this is not a major worry to me.

The other alternaitve is to balance transfer £600 to the Nat West card and keepo hold of the savings.

YorkshireBoy

I think I'd hang on to the savings, because with those numbers (and the recent very low £600 limit from NatWest) you're highly unlikely to get accepted for further cards should an emergency arise.

You still haven't said what the Barclaycard limit is.

Rising_Phoenix

I'm not sure what the barclaycard limit is, however it's not particularly important due to the account being closed (see above)

I'm not looking to take out any further credit and on the balance of things I think having the cash in the bank is for the best at the moment. I also quite like the psycological benefits of seeing a small fund building.

Thanks for you help and input

Lilibee

I would say hang on to the savings too, because they're not really 'savings' - they're more you budgeting for bills that you know are coming, spreading the cost in advance rather than after the fact. The money has an intended purpose and isn't just sat there doing nothing, it will be used to pay upcoming costs.

Maybe work out how much you actually need in the pot to cover bills and/or how much you need to put in it each month, and use any remainder towards the Barclaycard?

Rising_Phoenix

You're correct, the money very definately has an intended purpose. I've have worked out exactly what is needed and this is what the money is for - what got me thinking was an article on the website by Martin which advises that if you have any type of savings/cash this is almost always better utilised paying down any debts. But as you've said this money isnt really "savings" at all.

CLAPTON

Rising_Phoenix wrote: »

You're correct, the money very definately has an intended purpose. I've have worked out exactly what is needed and this is what the money is for - what got me thinking was an article on the website by Martin which advises that if you have any type of savings/cash this is almost always better utilised paying down any debts. But as you've said this money isnt really "savings" at all.

in purely financial terms using the savings to reduce will obviously reduce the interest you pay and so allow you to be debt free sooner.

however, if there is a concern about future credit availability then that's a matter for you to decide


in money terms if you put your 700 against debt costing you 17.9% APR then you reduce interest by 700 x 17.9% = £125 per annum whereas you are probably earning as 2.5% in savings i.e £17.50 per annum.