Debt free or no savings

Cat_Loving_Lady

So here's my dilemma. 4 years ago I had various debts totally just under £30k. 4 years of scrimping and scraping to pay the debt off. Today I owe £1,800 on a credit card 0% for 12 months. I also have exactly £1,800 in savings. So my dilemma is do I use the £1800 to be debt free or keep my savings. I currently can only repay £100 per month so will have another 18 months of paying it off. Or I can be debt free but have no back up savings which is a little scary.

tabby_cats_mum

If you've got an interest free card for 12 months I would pay £150 a month, the £100 you are paying and £50 out of your savings. That way you have some savings as a back up, you can hopefully add towards your savings and you know your debt will be paid off after 12 months.

DPDRC90

If you're financially stable now, I'd clear the debt off ASAP.

Mirno

You've managed to scrimp and save to cover your debts over the last 4 years, so you can probably trust yourself not to spend it. So it basically comes down to what interest are you getting on the £1800?
You'll be giving away 12 months of interest on that money - if the peace of mind of being debt free is worth it, then do it!

If you're only getting 0.1% then having an extra £1.80 in a years time isn't much of a muchness, but if you're getting 4% that's £72 you're giving away by paying early.

As long as you set yourself a reminder to clear it a few days before the end of the 0% period, that deal is free money.

enthusiasticsaver

Does it have to be all or nothing? Why not pay £800 off the credit card then pay the rest off at the same rate 10 months at £100 so long as the 0% lasts until July 2017 at least. You then still have £1k in savings and could maybe continue to save £25-£50 per month to build it back up again.

takman

The most moneysaving way to do it would be:

Pay the minimum payment plus £1 off the credit card each month (to avoid the minimum payment marker on your credit file).

Whatever is left from your £100 you put into your savings, which should be in a 5% interest account!.

At the end of the interest free period on your credit card you pay off the remaining balance with your savings. So you end up earning the maximum amount of interest on your money.

If you really want to push it you should also be paying your savings into a 6% interest regular savings account each month to get that extra few pounds of interest over the year.

This method also means that you have a cash emergency fund so are less likely to get into money trouble in the next 12 months.

Muttipops

Savings are there for a rainy day, the fridge that packs up, the unexpected car bill. If the lot has gone on paying off the debt, what money do you use for the emergency? Credit card!!!
I like the above suggestion from takman, it covers all bases and keeps the money in your hands, making money for you as long as possible.