Removing Contributions to pay debt

brokenglish

I have been paying into a pension for around 13 months with a 7% contribution and employer contribution of roughly 13%.

I have contributed around £3000. I am 26 years old.

I have credit card debts of approx. £4000 and an overdraft of £1500 though £1000 is interest free. I typically take it all the way up to that £1000 every month. I also have a 0% 18 month balance transfer card with around £3600 to pay off and about 22 months of 0% left.

My question is should I take out my contributions, losing my employer contributions, in order to pay down the high interest credit card debt?

atush

No you should not take out your contributions, and in many cases you cant even if you wanted to.

There are other ways to deal with debt. Most of which will be covered under the Debt Free forum. For a start, how did you get into debt? Are you spending more than your earn? Or were you out of work for some time?

Second, have you done a spending diary? Finding out where you are wasting cash? Have you MSe'd all your outgoings? Are you frittering your hard earned on things like going out, and buying new stuff?

Address these areas and post an SOA on the debt free forum. Once you free up cash/m, slam the most expensive debt first (be it the 500 or the 4K) paying the min on the others until you are out of the woods.

dunstonh

My question is should I take out my contributions, losing my employer contributions, in order to pay down the high interest credit card debt?

Ok, lets look at the cost assuming you are a basic rate taxpayer.

Lets say your 7% is £200pm. You get tax relief (and possibly reduced NI but you dont say). So, your take home pay is reduced by £160 with the Govt paying the extra £40 to make it £200.

Your employer adds 13% (not sure why you say roughly as it would be specific). However, going on 13%. So, they are adding £371pm to your contribution.

So, the pension is costing you £160 but you are getting £571.

You currently have no interest paying debts (bar a small amount of overdraft each month). So, you would lose £571 and gain £160 making you £411pm worse off each month (again that is based on an example contribution of £200pm from you as you dont say the amount).

Rather than get rid of a highly beneficial pension that most of us would kill for, why dont you look to cut back in other areas of your spending. The pension does not appear to be an easy shortcut for you. How much do you pay on luxury items like eating out, mobile phone, sky tv etc?

xylophone

Carry on with the pension - if you are spending up to your overdraft limit every month you are living beyond your means.

You need to work out where you can economise and I don't mean just cutting out the odd coffee at Nero's!

greenglide

Your employer adds 13% (not sure why you say roughly as it would be specific).

Is it a DB scheme (Final Salary)? This makes it an even worse idea if it is.

kidmugsy

If it's DB, and if it's a government employee scheme, go right ahead OP.

brokenglish

dunstonh wrote: »

Your employer adds 13% (not sure why you say roughly as it would be specific).

Because I didn't have the figures with me and I was estimating. It is actually 14.1%.

dunstonh wrote: »

You currently have no interest paying debts (bar a small amount of overdraft each month).

One of the £4000 cerdit cards is charged at 19.9% APR. Sorry that I was not clear. [/QUOTE]

dunstonh wrote: »

Rather than get rid of a highly beneficial pension that most of us would kill for, why dont you look to cut back in other areas of your spending. The pension does not appear to be an easy shortcut for you. How much do you pay on luxury items like eating out, mobile phone, sky tv etc?

I pay £37 for my mobile phone. Average £50 on eating out and drinking. I spend £62 a month paying for my bicycle, but there are only two months left on that. £100 a month for a Zopa loan from University which finishes next March. This plus rent, groceries, bills and council tax plus the two credit cards and I'm wiped out every month.

brokenglish

greenglide wrote: »

Is it a DB scheme (Final Salary)? This makes it an even worse idea if it is.

It is not final salary it is a teacher pension. It is also worth adding that I am leaving this job in August. Unclear what the pension scheme of the next employer is.

atush

That isn't a proper SOA, go to the debt free board and post one and ask for comments (37 isn't a cheap phone contract. I have one around 10 for my son, and another around 20).

Plus you wont be counting all the little amounts you waste, and if you are saying you spend 50 on eating and drinking, my guess is it is higher. Spend less ont hat and groceries, then in two months when the bike payment is gone you will already have 100 a month to slam the highest debt.

Increase earnings, incl extra hours or second job. Sell unused items on ebay etc.

atush

brokenglish wrote: »

It is not final salary it is a teacher pension. It is also worth adding that I am leaving this job.

the TPA or teachers pension IS a DB/FS scheme. And is one of the best going (even if it isn't as good as before). Stop paying into it when you leave teaching.

Not before. And when you leave, if there 2 years or more, leave it. If less, transfer it to another pension scheme. As above, you'd get very little back of the true value.

xylophone

the TPA or teachers pension IS a DB/FS scheme

Certainly DB but not necessarily FS.

https://www.teacherspensions.co.uk/members/your-scheme/your-working-years/how-do-i-know-which-arrangement-or-arrangements-i-am-in.aspx