Advice please: Debt vs Savings

Lolly88

Hi I was hoping for some advice on the best way to manage my finances as I’m a little unsure about the best thing to do. In the past I was a devoted saver but since 2012 I depleted my savings and got into the habit of routinely going in and out of my overdraft. This is due to unexpectedly moving home 5 times in the past 2 years. By the end of this month I anticipate I will have around £1800 in debt – (£768 is on my argos card and the remaining amount will be my anticipated overdraft debt by the end of this month).

In my current position I have at least £700, which I can dedicate to debt and/or savings each month. My original plan was to pay of my debt by March and then focus on saving, but my overdraft is interest free and my Argos card is interest free until November. Therefore it seems wiser to start saving now rather than later?

My current account is with Lloyds and I was planning to upgrade to club Lloyds account to take advantage of the high interest they offer on their savings account and current account. I would deposit the max £400 per month in the savings account and then open a TSB current account and deposit up to £2000 there and leave any remaining savings in my club Lloyds current account. However in order to upgrade I’m going to have to pay off my overdraft first. I'm based in the midlands and considered opening a regular savings account with West Bromwich building society at 3.3% interest - but they only allow £100 a month maximum which doesn't really seem worth it.

Since, I have £1500 interest free overdraft with my current Lloyds account I’m unsure whether it’s best to just move that money somewhere else to earn interest rather than focusing on paying it off. In which case I don’t know what the best options will be for saving. Whatever happens I don’t want to switch accounts because it’s the most stable thing on my credit report – especially given the fact that I have moved around so much. My credit score is poor at the moment and this seems to be because the electoral roll has not yet been updated to show me as listed at my current address.

Sorry for the long post, I'm probably over thinking everything but I'm really determined to get on top form financially this year. Please advise!

HappyMJ

Personally...me...using and maxing out a £1,500 interest free overdraft to invest at 3.3% to earn less than £1 per week wouldn't be the best way to earn money. I'd keep the overdraft for emergencies and just leave it at that rather than having it show as a debt on my credit report.

My advice...pay it off. Your credit rating will improve.

Lolly88

My overdraft has never shown up on my credit reports, I'm not sure why. So it may not have much bearing on my credit rating.

HappyMJ

Lolly88 wrote: »

My overdraft has never shown up on my credit reports, I'm not sure why. So it may not have much bearing on my credit rating.

I think you'll find it will as per the advice of the boss below. If you were to apply for a loan with the bank that holds the overdraft they will see you are overdrawn each month and most probably refuse to give you a loan. An overdraft is supposed to be a very short term form of credit.

BOSS_186 wrote: »

Unpaid overdraft can flag red

Lolly88

HappyMJ wrote: »

I think you'll find it will as per the advice of the boss below. If you were to apply for a loan with the bank that holds the overdraft they will see you are overdrawn each month and most probably refuse to give you a loan. An overdraft is supposed to be a very short term form of credit.

I was accepted for a £6000 loan in June 2013 with Lloyds when I was over £1000 overdrawn and they were obviously aware of this. I have also successfully applied for credit cards with american express and tesco with my overdraft also and never had problems. As I said in my previous post it does not show up on my credit report - at least not the versions that I see, I don't know if creditors see anything differently. It always lists that I have £2000 credit with lloyds but that my balance is 0.

So the general consensus is to pay of my debt first despite savings interest being higher?