Priority of debts & savings...

liamgallagher87

Hey,

Short of it...

• Just bought a new house
• Baby on way and wife on statutory pay
• Combined bills (inc food, fuel, full budget etc) - 2606
• Combined income - 2800
• 1800 on 2x credit cards - 18.9% apr, £50 per month
• -1800 in overdraft - £30 monthly fee
• 4k left on car 0% interest, 18 months left, £200 per month
• 2k personal loan 8.8% apr, 16 months left, £150 per month
• £2,500 in savings account

So as the short of it states im transitioning into fatherhood and hoping to sort out all of our finances once and for all after living like students for the past decade!

We're 27 and 28 respectively, after all of our outgoings we have £150 spare per month i put straight into savings.

I want to keep the savings for a rainy day but im wondering if id be better off wiping out a debt instead even though we can afford the monthly repayments comfortably?

Thanks for any advice

AnotherJoe

Wipe out the debts. You can always borrow the money back on credit card if an emergency applies.

At the moment you are losing more than your so-called savings in interest and payments, and although you call them "savings" if you have £2,500 savings and £3,600 in debt the reality is you don't have savings.

enjoyyourshoes

OD fee is costing you 20% pa plus whatever interest they are charging you.
Use spare cash to eliminate OD

Then daily reconcile this bank account making sure you account for every payment (SO/DD/Pay at pump, contactless switch and all CC purchases (but don't use CC now) Ensuew you have enough funds to meet monthly needs.
Do cash flow with all annual, 1/2 and 1/4ly bills and work out how much you need to save to pay for these and set up DD monthly from bank account to savings account (or high interest current account you only use for these bills) (again you save for the MOT so when it arrives you have the cash)

Increase your car monthly repayment on CC to £222.22 pm and will pay it all off, don't ever use that card to spend as you get hot by their high APR not 0%

Look at reducing dramatically the two 18.9% apr cards and again don't use.

I would personally get debt free before saving unless debt is 0% or very low % and you have a DD to pay it off before the term ends.

Karonher

I would not wipe out the savings completely just in case something unexpected crops up, but certainly use some or most to pay off the higher interest cards.

That said I would stop adding to the savings until all the debt had gone.

Helvetica_Van_Buren

- Pay off the overdraft completely with the money from your savings.

- With what's left over from your savings, pay off as much as you can from the two credit cards that are charging you interest.

- Don't worry about spending your savings because you'll still have the credit cards to use in the case of an emergency.

- Pay only the minimum on the 0% credit card until the end of the period. Based on your current balance, depending on the minimum payment rate to the card you should be able to roughly halve the amount of money you're paying to it.

- Maintain the monthly loan repayments - for now, with a view to paying it off early later when you've settled these high APR debts.

- After making the lump sum payment to the 2 credit cards, over-pay as much as you can. When they are at 0% save them to use in the case of an emergency until your savings have replenished.

- If you can, move the 2 credit card balances to a 0% balance transfer credit card. This will buy you some breathing space.

- Once the 2 credit cards and overdraft are paid start putting money back into your savings with a view to paying off your 0% credit card at the end of the promotional period.

- If you're lucky you might be able to get a 0% balance transfer on another credit card when this promotional offer expires - but don't count on it. Instead, be ready to pay it off in full by saving between now and then (only after paying off your other credit cards and overdraft, remember).

- Presuming you have 18 months left to pay on the 0% credit card, calculate the balance after making 18 months of minimum payments between now and then - this is how much you'll need to have saved.

DawnW

Just a thought, but have you reviewed your outgoings recently, to make sure you have the best deals on items such as utilities, phone contracts, TV/ broadband, insurances etc?

Sanctioned_Parts_List

Lots of good advice from everyone above: as already mentioned above, you don't really have savings, just inefficiently administered debt.

That £2500 currently languishing in a savings account would need to be accruing better than 22% APR to be profitable compared with using it to clear debt.

The overdraft facility won't vanish unless you change it, and the available credit on CCs won't go away either for the same reason, so there's your access to cash in emergencies until such time as you've paid down the interest-bearing debts and have some proper savings.

Six weeks after doing this (to give the CRAs time to update), you might be able to transfer the rest of your credit card debt to a long 0% balance transfer card.

And +1 to reviewing spending.

bouncydog1

To see for yourself what the impact will be put the figures - debts and interest rates - into the snowball feature on whatsthecost.com

i personally would keep a small emergency fund, particularly with a baby on the way as you may have additional costs. Good luck - your debts are very manageable.