Help with debt and savings!!

ehdx

Hi Everyone, (I posted this in a different forum but this one seemed more appropriate)


I'm looking for some opinions/advice from people other than my Mum.


Before I explain, I'd like to say that I am very aware that I am lucky to have savings of this amount, but my problem is that I'm worried for my future if I take a big chunk out of my savings.


I'm 21 years old and have 17k debt. Believe it or not I have nothing to show for this. It started when I was 18 years old and got accepted for a credit card and things spiralled out of control from there.


I am very fortunate to have 52k in a fixed termed bond. It's been in there for 3 years and I do not have access to it. The bond matures this month and before putting it back into another bond (it seems like the best thing to do so that I can't get my hands on it and spend it) I want to know whether or not I should pay off my debt.


My Mum has been very involved in what I should do with this money. I was inherited it when a family member died and although my Mum only wants the best for me, she is very controlling when it comes to the money and doesn't want me to pay off my debt with it. She says that I'll be wasting the money by paying off my debt and that I should put all the savings back into a fixed term bond.


The problem is, I'm struggling to get by each month as I have so much money to pay back to creditors. On the other hand, my Mum's words have really got into my head and I feel as though I will be wasting so much money just paying my debt off and making a huge chunk in my savings.


My savings will be used, eventually, as a deposit for either a house or flat. I know that I need as much money as possible for a deposit and I also know how difficult it will be for me to get a mortgage. (If I'm applying for a smaller mortgage I may have more chance as I don't earn a great deal of money)


On top of this, living with my Mum is very difficult, so the sooner I can get a mortgage and move out the better...... which only adds to my trouble of needing as much savings as possible and needing to pay off my debt to even be able to afford a mortgage.




I would really appreciate if someone could give some advice on what they might do in the situation/ what financially is the best thing to do.


Thank you!

EssexHebridean

This is a no brainer - as everyone is going to tell you.

Pay off the debt - reinvest the balance into the best interest paying options you can find - but be very wary of locking away for a long time at the moment as with interest rates on the rise, a good deal next month might not be a good deal at all in a year's time.

the ONLY exception to this is if a) all your debt is permanently on 0% or b) you can find a savings account that pays more than the HIGHEST rate of interest you're currently being charged on your debt.

*edit* think about starting to gradually get money into a Lifetime ISA - cram the maximum amount you're allowed to in there as that way you'll get the bonus when you decide to buy.

I think with your mum you're just going to have to take a deep breath and say politely that you disagree with her stance on the money/savings, and that you've taken independant advice on the subject and you're taking that. Personally I'd also not tell her until the deed is done - it IS your money after all!

Once the debt is gone all the money you're currently paying elsewhere each month can then get stashed into savings - and that in itself will help you build your deposit quicker of course.

depending on the status of the debt it might be possible to make full & final offers on it - someone else better versed in this will need to advise on that though.

starting_again_in_the_sun

Whilst I agree with the PP, I think you should also take steps to get your spending under control.

Meaning this in the nicest possible way, £17k on nothing over 3 years is an awful lot of money. I expect your mum's worry is that if you pay off the debt, you'll be in the same position in 3 years and before long the money will be gone.

So, pay off the debt but try to stick to a budget and start increasing your savings again .

tallyhoh

Oh dear, your mum is wrong here. Can you tot up your debts plus the interest you would pay & present it to her? Snowball calculator would help add it all up.

Pablosammy

With all due respect, your mum is wrong. You'd be wasting money by NOT paying off the debt, and I suspect you already know this by the fact that you're asking the question on here. You're in a very fortunate position, don't throw more money down the drain in interest.

This is a no-brainer in my eyes. Pay off the debt, get solvent, but most importantly, SORT YOUR SPENDING OUT! The be that much in debt by your age indicates serious spending problems.

Here's a life lesson that I learned far too late - learn to budget properly. There are free tools online if you're no good with Excel. Plan and save for big annual expenses like car servicing etc so they're not a surprise when they come in. Work out where your money has been going, and only then can you reign it in and get everything under control.

Good luck :T

EssexHebridean

starting_again_in_the_sun wrote: »

Whilst I agree with the PP, I think you should also take steps to get your spending under control.

Meaning this in the nicest possible way, £17k on nothing over 3 years is an awful lot of money. I expect your mum's worry is that if you pay off the debt, you'll be in the same position in 3 years and before long the money will be gone.

So, pay off the debt but try to stick to a budget and start increasing your savings again .

Very valid points - albeit that I read it that the OP had already frightened herself half to death and realised the error of her ways. (Exactly what I did many years ago!)

enthusiasticsaver

Financially the best thing to do is pay off the debt and reinvest the rest for several reasons.

Firstly the interest being paid on the debt is undoubtedly higher than you are earning on the fixed term bond unless all the credit card debt is at 0%. You do not say whether it is just credit cards or credit cards and loans but take a look at the interest rates you are paying and what you will receive on your £52k

Secondly at some point you say you want a mortgage so you need a squeaky clean credit record. Again you don't say how much you earn but potential mortgage lenders cannot see savings but they can see debt. If you have £17k of debt then many lenders may consider you a bad risk and you again not get offered the best rates.

There are several things you could do.

Firstly when the bond matures pay off the debt and retain one credit card. Use it for fuel or food or whatever monthly and PAY IT OFF IN FULL EACH MONTH. No interest and it will improve your credit record.

Research Help to Buy ISA or LISA on how to get the free government bonus/incentive as you are a first time buyer. The interest rates are higher than most savings accounts including probably your bond and it will be there waiting for you when you are ready to buy. Whatever your monthly payments were on your debts put that aside each month to replace the £17k. At least that way you are paying no interest.

Finally learn to budget. Work out income and outgoings and set up some sort of pots system so you do not overspend. This is something you need to learn at some point so do it now while you are young, you have a windfall and can turn your bad attitude to money around. You should not need to put money away so you cannot touch it. You may need it to buy a property at some point and then there will be a penalty if you have to take it out even if they let you. Discipline around money can be learnt and at some point it will have to be so do it now.

Your mum obviously knows you better than we do and is concerned about your debt and attitude to spending but financially it makes the best sense to pay it off, learn the lesson and move forward doing better. If you are going to buy a property at some point you need to do this anyway.

MEM62

The advice given above is sound but I am wondering if mum has a different perspective.

The 'easy' way to clear the debt is to take money from the inheritance, which was easily come by. Perhaps mum's train of thought is that if the OP clears the debt the hard way - with money that they have had to go and earn - then a valuable lesson is learnt in the value of money and stupidity of unmanageable debt.

No doubt mum has given advice on money management before and £17K of debt in three years with nothing to show for it suggests that this might have has fallen on deaf ears. Taking money from the inheritance is absolutely the cheapest way to clear the debt, but perhaps the long term value of a hard lesson in the value of money will benefit the OP more over a lifetime than the interest saved now.

If the OP is still living a home and employed then some degree of sacrifice should see the debt cleared relatively quickly and they would be far less likely to want to repeat the experience.

Just a thought.

Mnd

I would use the money to pay off the debts to clear the interst, but you need to ensure that you get back control of your financial affairs and treat the debt as though you owe yourself. You can then demonstrate to your mum that you have changed..good luck!

Max_and_sasha

Why not compromise

Pay off the debt with your inheritance, then with the money you were paying to the debts put into savings so your mum will be happy with that, and you will not be paying interest, it would be like giving yourself a loan, maybe set up a direct debit so you know you are rebuilding your savings,

Goodluck with whatever you decide

Max