Am I stupid?

Sea78

Pay off the card (and cancel it!!) - how much are you paying in interest and paying each month on the CC?
Sea xx

david_hellier

It's not stupidity, it's just illogical but an understandable human emotion. Savings give us some comfort, but the comfort is mythical if there are debts in the mix, particularly consumer debt like CCs, loans and store cards.

Use your cash to pay off the card and stop using the card. Use the repayments you would normally make to boost your savings. Use your savings for luxuries and emergencies. Credit cards actually reduce your spending power by charging you interest, because the interest you pay out could actually be used to buy material goods.

For example if you payed £1000 for a TV on a Tesco card you could end up paying £1718.86 on a minimum payment basis. But if you had £1718.86 saved up you could have bought the TV, plus a laptop and a HI Fi too.

Regards,

Dave.

taxi73

Yes pay off the CC...for all the reasons above ...what a great post!!

Serialdieter

Pay off the credit card (then cut up and cancel), you'll still have some savings and be debt free. An excellent start to parenthood.

jx

kissingthepink

Well I get about 5.8% interest on my ISA and pay 4.95% on my credit card. (fixed life of balance deal). I like the security of having a bit of cash in an ISA (this is the first time in my life that I have had some savings tucked away), and eventaully the cr card will be paid off in a few years time (I am not stretching myself to pay it off quick sticks). Now......Am I stupid?

Oh boy, I've set myself up for this one

ifstar

Pecker1210 wrote: »

I have a couple of grand I have saved which I am putting aside for a years time when I have a baby but I have a £900 credit card balance.

Should I pay off the CC now and begin saving or try and save and pay off as and when I can?

It's just that I worked hard to get the 2K and am struggling to let it go!

Thanks

What is the rate of your savings compaired to your credit card?
If your savings are in a 6% ISA and your credit card is 0% then it makes sense to keep the money in the ISA just now. If you have a higher APR on the credit card then pay that off.

ifstar

kissingthepink wrote: »

Well I get about 5.8% interest on my ISA and pay 4.95% on my credit card. (fixed life of balance deal). I like the security of having a bit of cash in an ISA (this is the first time in my life that I have had some savings tucked away), and eventaully the cr card will be paid off in a few years time (I am not stretching myself to pay it off quick sticks). Now......Am I stupid?

Oh boy, I've set myself up for this one

In theory you are better keeping the money in the ISA as you earn more interest, however if you are only making the minimum payment then it will take a long time to clear your CC and this might feel like a constant burden for you.

The other thing you need to consider, are you disciplined enough not to take money from the ISA (either the money you put in on the interest). No point in earning a little extra in the interest if you just fritter it away.

GettingThingsDone

Hi - great post!

Is the comfort factor worth what it is costing you in interest?

One way to get to the 'correct' solution (i.e. pay off your loan) may be to take it in stages, say £300 a month over 3 months (PLUS INTEREST) and ease yourself into it.

Another alternative is to still think that you have £2K, it's just that £900 is in a special high-interest account.

Just some thoughts...

dreams_R_free

Great question, Pecker, and really interesting answers.

I empathise with you because I have a lot more debt than you:o but don't want to cash in my Premium Bonds even though it is the only sensible thing to do. I don't even have the excuse of earning any interest from them but the prospect of a win makes me keep hold of them:rolleyes:.

I think we all know what we should do. It's just the getting on and doing it that's the problem:rotfl:

Good Luck with your finances and the baby.

hbl_2

Hypothetically with really simple numbers, say you have £500 in savings and £500 on your credit card, but are earning more in interest than you are being charged, say 5% on savings, 4% on credit card and it's applied monthly. That would be £2.08 on the savings per month, and £1.67 charged on the card, a net gain of 41p per month, or £4.92 a year.

The following month, you get your interest on the savings again (about £2 again) and you pay off your minimum on the card (say 5% - £25) and get charged interest again at 4%, £1.50, your net gain has only increased by 9p, or £1.08 a year...

Now is your time and worry worth such a small amount of money? If you pay the credit card now from your savings, in this hypothetical situation, you would have no savings and no credit card. Now the money you were using to meet the minumum payments AND the money you were saving can both go into the savings. So say you were start saving £25 a month on top of the £25 you were using to pay your credit card, in two months time you would have £100 in savings, which at 5% would net you £5 a year, which is a monthly interest addition of, guess what? 41p - exactly what you are 'earning' now.

Plus savings don't charge you if you make a late payment. Think about it.