Should I use my savings to pay off debts?

dragon73

Hi everyone,

I heard Martin on Radio 1 yesterday and this prompted me to ask for peoples opinions.

I have been sorting out my debts (credit cards and overdrafts) for the past couple of years now, mostly by moving balances between 0% offers.

My current situation is

Credit card = £1584.29
Overdraft 1 = £813.36
Overdraft 2 = £1750

Total debt = £4147.65

Myself and my wife's earnings just about cover the outgoings of a little under £1700 a month including debt payments.

I am 31 & self employed and have been contributing to an ISA on a monthly basis for the past few years. The ISA will be my 'pension' if you like when I retire. The ISA is currently worth £6285.92.

This may be a stupid question but should I use the money in the ISA to pay off my existing debts which will still leave me with a nice amount in there.

My main problem is if I use it, it feels a though I will have to start my savings all over again, but on the other hand I will be debt free and getting things back on track which may allow me to pay more into each month.

Your comments and suggestions would be gratefully received.

RAS

Hi
Welcome

The decision will depend very much on the APRs that you are paying. Can you list those.

Ideally you would also want to add your full SOA (see southernscouser's thread at the top of the page for newbies), as there may be other places in your life where you can save on spending that would affect the advice given.

lady_fuschia

Isn't there an article somewhere about paying off debts with savings? That may be helpful. I'll see if I can find it.

Hendrix_lennon

I personally would use my savings - if i had any - to clear my debts.
The interest will be going up and up each month and imagine how much of a relief it would be to have them all cleared.
You're only 31 so I'm sure you'll be able to start your ISA savings again and still have a substantial nest egg in 30 years.
Good luck.

lady_fuschia

Have a read of this:

http://www.moneysavingexpert.com/cards/pay-off-debts

dreams_R_free

As you are only 31 you have plenty of time to start saving again as soon as your debts are clear. You'll have spare cash for saving when you don't need it for CC bills. There are some good savings accounts available now and although you'll pay tax on the interest at least you won't be paying out in CC fees.

Also, next year the allowance for ISAs is going up to £3600 so you'll have the opportunity to save more then.

I've just sent off the form to cash in all my Premium Bonds purely with the intention of paying off my debts with them. I haven't won anything for a while despite having £25000-worth so it's time for them to be put to better use.

Good Luck:beer:

Storm

Unless you're on 0% deals, then you're paying more in interest on the CC & ODs than you'll gain in savings. Once these are clear you can start putting more aside into savings - even if you go over the ISA limit for the year you can put it into a high rate savings account and transfer £3K straight over next April to get the max tax free.

gizfizz

if its all at 0% then I would say no, depending on how long it will take you to clear it all. but if its not all 0%, then it depends on the apr's you're paying. You could always pay off some of it eg. the 2 overdrafts, leaving you with the CC and £3722.56 savings so not quite as much of a dent in the savings??

dragon73

Thanks for everyones replies,

The interest rates are 15.9% for the credit card and 7.25% for the overdrafts.

I have tried the 0% balance transfer options many many times before and to be honest have just got fed up with keep switching and paying the fees.

I had hoped to pay this one off quicker.

I think deep down I know the best option is to use what savings I have and start a fresh knowing that I am debt free and have plenty of time to rebuild the savings I have used.

fistfullofdollars

If you are in two minds whether to I would personally use the savings to pay off the debt with the highest interest as you will be paying more than you are earning. Then tackle what you have left.

Then save atleast 3 months salary up as a comfort zone/rainy day fund.

Do you own your own house? It may be worthwhile to keep a hold of all of the savings for a deposit if you intend to buy soon.

wannasavemoney

If you pay off the debts, you still have a cushion with the rest of your savings and then you can put whatever you would have paid off the debt per month into the savings account and build it back up a little quicker, even if you use your full isa availability, you will still be able to find some quite good savings schemes. One of mine is the Lloyds regular saver which is a good apr and builds up quite nicely and there are no penalties for taking cash out if the proverbial hits the fan in the meantime.