Savings or Debt Clearance

CandyCupcake

Hi Everyone,


Just a quick one myself and my partner both have credit cards which we want to clear. One incurring interest, the other at 0%. We started the Penny Savings Challenge in the New Year and currently have around £200.


I'm just wondering am I best using the money for the penny savings to pay towards the credit card instead of putting it into savings? Or keep the savings as a little Emergency savings pot.


Thanks in advance for any suggestions!

EssexHebridean

Do you currently have an emergency fund saved? If not then I'd say you need to think about getting that sorted - but generally speaking having savings whilst also paying interest on debt is a very poor idea. If it were me I'd be looking at splitting the savings 50/50 between an emergency fund and paying against the interest charging debt as overpayments. I'd also be looking (maybe via the eligibility checks on the MSE credit Club) in to whether it would be possible to balance transfer the interest charging card across to a 0% card.

As far as emergency funds go - if you're a homeowner look to aim for £1000 saved, Renting and also own a car then perhaps £500, and renting but not owning a car then £250 will cover most of the eventualities you are likely to encounter.

You might also want to consider filling in an up to date SOA (Statement of Affairs - link to the calculator is in my signature) to see if there is anywhere you could cut back in order top pay more back against the debt.

CandyCupcake

We save £50 a month into EF savings, only started this year and had to dip into it for some house things already so only about £15 in there at the minute! But you think £500 is enough for an EF? We are homeowners, with 2 cars. But we do have a separate savings account that we deposit money into monthly for insurance tax / MOT / servicing etc. So the EF fund would just be for the house.


I like your idea of half the Penny Savings to the credit card and half to the EF though. So might do this, as we will get to the £500 quicker, which will then free up the £50 a month go to the credit card.


Thank you so much!

EssexHebridean

I've corrected my typo on the EF amounts Candy - apologies for confusion! :eek:

We're also homeowners with 2 cars and the minimum I'd want to feel "moderately safe" is £1000 but like you we also budget as we go along for car related expenses so realistically this amount is "just" for house stuff. I've always worked on the basis that if the washing machine goes wrong and causes a plumber to be needed to sort out the problem, plus work to sort out water leakage, tat amount is roughly what will cover it AND replace the machine if needed, if that makes sense - sort of "belt & braces" if you like.

CandyCupcake

Thank you so much for your help. I will continue to pay our £50 a month into the EF fund, as well as half the penny savings to EF and half to credit cards. This definitely seems like the best of both worlds option. Really appreciate you taking the time to respond

getmore4less

What size/rate are the debts?

CandyCupcake

Hi getmore4less,


The Barclaycard is currently at £1517.34 @ 29.9%.


The MBNA is £2730.30 @ 0% until October 2020.


Thanks.

[Deleted User]

Hi CandyCupcake,

So when I was getting rid of the debt last year I decided that in order to make myself feel better I used all the savings I had to pay off the debt quicker.

Now this for me personally was the best thing but its not the same for everyone, ultimately no matter what anyone advises you the decision has to be whats best for you in this situation.

Dxxx

CandyCupcake

Hi Deleted_User,


I can completely understand where your logic comes from, at the minute I'm feeling torn about what would actually make me feel better. So I think I will go with EssexHebridean's suggestion of 50/50, as that way I will still be slowly building savings (which I can use instead of getting into further debt) but the debt will also be coming down.


I swear after these credit cards are paid off I'm never getting them ever again. The stress they cause me is just not worth it, as I can't be trusted with them


Thank you so much for taking the time to reply.

MEM62

CandyCupcake wrote: »

I'm just wondering am I best using the money for the penny savings to pay towards the credit card instead of putting it into savings? Or keep the savings as a little Emergency savings pot.

Either or is not your only choice. Why not split the money between both? That way you will both reduce your debt and build your emergency fund.

CandyCupcake

I think this definitely sounds like the best solution, for a best of both worlds approach


Thank you so much.