Using Kids Savings to pay off our debts?

moneydoesnotmakeyouhappy

Hi all, just wondered what any of you think. We have got £11,500 of debt on expensive (20% ish) credit cards which we can only afford to make min payments on (which means it'll take us about 10 years to pay back)

However we have managed to save up about £10k for our son and daughter (13 & 6) for when they go to Uni, buy car, house etc). Our gut feel is that we should just use kids to pay off debt as we will then be debt free and have enough time to save up a good pot for them again. Is the right thing to do as me and wife feel like we are betraying our kids.

Can you help please?:rotfl:

R_P_W

Do it ASAP in my opinion!

Ologhai

In a way, it seems amazing to me that you managed to save up around £10k and acquired £11.5k of credit card debt at the same time!

Of course, it depends upon the time-frame (and the circumstances) that both the savings and the debt occurred, but I suppose you'd have to ask yourself whether the debts were (as indirectly as it may seem) a consequence of the savings?

If you now consider yourself net savers, I would probably pay off the debt with the savings, then begin to save as hard as you can to replace the spent savings (and then don't stop there--keep saving after that!)

However, if you're just breaking even (or perhaps even spending more than comes in), you have to ask yourself whether you'd be paying off the debt now, only to find yourself in a couple of years with another £11.5k debt, but no longer any savings for the kids.

If the future looks like an indebted one, then I don't think that spending your savings to pay off the debt is the complete solution.

Perelandra

Did you save up the money from your own incomes, or was it gifted for the children from friends/family?

If the former, I'd be inclined to pay off the debt- but then I'd also be refilling the pot to put the money back as soon as I could, PLUS the interest saved.

If the latter, then no I wouldn't- as if it has been gifted to them, it's not really yours to use in this way.

oldfella

the CC interest you would save over the period would substantially replace your savings.

anselld

If the money is saved in the kids names the bank/building society will take a dim view of you trying to withdraw their money.

IronWolf

at 20% interest, definitely. With the oldest being 10 you have enough time to build them back up, and more.

talexuser

Assuming the kid's money is YOUR gifts and not someone else's....

1 Work out ballpark figures for the debt repayments if you pay off the 10 grand, and how soon you could clear it entirely.

2 Look at the difference compared to the min payments of the 11 grand debt you are paying and can afford now.

3 How long would it take to replace the 10 grand if you continued to put aside the money you are paying (and can afford) on the 11 grand now?

4 It will be a lot less than paying off the 11 grand with interest.

5 STICK to saving that amount to make sure you replace the kids' money.

jamesd

moneydoesnotmakeyouhappy wrote: »

Our gut feel is that we should just use kids to pay off debt

Is the money in accounts in the name of the children or in your own names?

This will determine the legal status of the money: whether it's yours to do with as you wish or theirs with you as trustees obliged to act in their best interests.

If trustees it's not really appropriate to use the money of those who you are trustee for to pay your personal debts and in some cases can be a crime. As a practical matter, if as trustees and given their ages, it is not very likely that they will notice themselves but the bank might. To act to the extent you can in their best interests you'd want to ensure that you arrange to pay appropriate interest to them for the use of their money. They will benefit from the improved household finances as well.

So: if not in their name, it's easy, go ahead. If in their name, be prepared with a detailed plan, including loan agreement with repayment terms, on how to repay so that you can provide this if asked.

If it's in their name in a Junior ISA expect it not to be possible. That's where the money should be given the timescale involved but it might not be.

If it's an ordinary savings account in their own names, from age 7 they can operate the accounts themselves, including paying money in and taking it out. Assuming all of the money came from their parents then the interest is taxable if it is more than £100 per year, otherwise you can use form R85 to reclaim the tax on their behalf. Money in Junior ISAs, CTFs isn't taxable at any amount.

ermine

moneydoesnotmakeyouhappy wrote: »

Our gut feel is that we should just use kids to pay off debt as we will then be debt free and have enough time to save up a good pot for them again. Is the right thing to do as me and wife feel like we are betraying our kids.

My gut feel is you are simply not rich enough to do this for your children, because the credit card debt implies you are living above your means. However, if the money is yours rather than the children's then it seems a no brainer - face the facts, get rid of the interest millstone and maybe save the interest you were paying. After all five years of saving 20% of the savings will get you back to the original savings level.

As an alternative you could try shifting some of the debt using balance transfer cards which would let you pay it back quicker without raiding the savings. But if the savings are in your name then it's an irrational thing to do - labelling your money in different pots is a behavioural bias called mental accounting, possibly leading you to pay £2000 p.a. to a credit card firm for no good reason.

Mr_K

It's their money not yours even if you gifted it. Its all very well saying you'll pay it back but it sounds as though there is a real chance you won't do it.

HMRC might start to get interested if you use this money, as you spending it suggests it's your savings all along that should have been taxed.

Don't pay any more into it, as you obviously can't afford to, and start paying off your debts (and cut up your credit cards).