To Save, or To Repay??

CParsons

Hi Folks,

I am sure someone else has probably posted a similar question elsewhere, but after a bit of digging around this afternoon I can't find anything so I thought I would post anyway!

I am an IT Contractor, and have just had a large increase in my pay as a result of a new 12 month contract. I have some debts, about £15k in varying amounts, all of which are paid every month and I am not struggling; equally though I tend not to overpay as I have an expensive hobby. Overall I am reasonably comfortable and enjoy myself, but I have a dilema.

I have no savings worth speaking about.

With the increase in wages I have just had I am wondering whether I should build up some savings (in case I am ever without a contract, work or income); or I should attempt to pay off the debt first.

While I would like to be free of the debt it does sometimes concern me that being self employed and with only a 4 week notice on a fixed contract I have no back up plan.

Any thoughts?

Craig.

Skint_Catt

Personally if ANY of your debts are charging interest then pay them off. You won't gain more interest saving than you will by not paying interest - if you know what I mean!

What about 50/50 or 25/75 in favour of debts? Then you've got a small sum to drop back on!

Catt xx

Storm

As you're a contractor I would say that some savings would be a good back-up, however as you've got debts you will earn far less interest than you're paying.

As the new contract is for 12 months, what you could do is decide how much money you want as a cushion, i.e. £3000 would require you to save £250 per month (in a cash ISA, so no tax taken on the interest) then see how much extra you could put towards your debt each month.

You can then use the snowball calculator at https://www.whatsthecost.com to work out how much debt you'll have left at the end of 12 months... and compare it to you paying all the surplus of the debts & see how they compare.

In terms of having savings to cushion any drop in income, the less debt you have, the less you'll need in savings as your monthly outgoings will be significantly reduced.

Hope that makes sense!

angelavdavis

I am in a similar position to you, although my debt level is higher.

I have moved all my debt to 0% and am throwing as much money as possible at the debts, however, I did use my ISA allowance for 2006/7 this year once transferring the debt across with a view to using it to either pay off the chunk remaining of the debt once it stops being 0% or alternatively, if I have paid off the debt by then - I will keep it as savings.

Many permanent workers only have 4 weeks notice period, so you are no less secure and you are earning a premium.

CParsons

Thanks for all your help and advice guys. I think I am going to build up a sensible savings level so that at the end of the contract I have enough to survive for a few months... probably an ISA full as that seems sensible.

I will do this as quickly as possible and then as soon as it is done I will hit the debt hard.

I have a loan which I can't settle early, so I am going to put enough money in a seperate account to allow the loan to repay itself over time and then forget about it. This is after I have contacted the lender to try and bend their arm in to settling early for a lower amount - you never know your luck!!

Thanks again folks.

raq

hi there

We have recently had a change of circumstances. Our debt is £9,000.00 and we are now lucky to have extra income. We are doing the 75/25 part. 75% on the debt and the rest on savings as we have no savings. We have worked it out we should be clear in about 2 1/2 years time. If my husband works the odd overtime then this will also go against the debt

immoral_angeluk

I would personally build up a couple months worth of savings (enough to cover a couple months unemployment I mean.) as a back up and then pay off the debt.