Using Savings to Pay off Debts

Marie1705

Hi

This is my first post and think I know the answer to my query but would like your perception on it.

I recently sold my house and saw a nice profit, I had run up some debts during my separation and used £10,000 of the settlement to go towards paying these off, I put the rest into savings, for that "Comfort Zone" I had never had.

However, I still have CC debts, one of my savings accounts has £7400 ish in it and I put some in every month to top it up, I always pay over my minimum payment on my other debt too.

Below is the existing debt and how much I will be paying in August (which is similar each month), my question is do I use my savings to pay this off in full now out of my savings or continue as I am?

Balance Minimum Payment Due Date My Intended Payment

DP New Day £312.38 £9.94 08/08/2019 £50.00
Amazon New Day £323.30 £5.31 09/08/2019 £100.00
Barlcaycard £4,061.75 £125.00 15/08/2019 £125.00
Paypal £162.41 £5.00 12/08/2019 £100.00

Totals £4,919.82 £150.25 £375.00

Thanks in advance :j

Willing2Learn

If it were me, I would always keep some money saved up as my Emergency Fund (EF).

The interest rates are considerably higher for money that you borrow compared to money you can save. It is therefore cost effective to pay down your debts asap, whilst still keeping an EF in place.

Ideally, I reckon people should have enough savings in their EF to provide a six month buffer.

And welcome to the forum Marie1705

trailingspouse

With total debt of £4,919, and total savings of £7400 (and being able to add to it each month), I would definitely pay off the debts asap.


You'll be left with an emergency fund of £2500, give or take - you can then increase that every month by the £375 that would have gone to servicing your debt, and be back up to £7000+ in just over a year - probably less than a year, as you said you're currently adding to your savings as well as servicing the debts.


Well done!!

FireWyrm

God yes! You say you have one of your savings accounts has £7.5K in it implying that you actually have more savings. Even IF this was all you had, think of it this way - every month you pay interest is 'dead' money. It literally depreciates your savings because you are paying interest on a debt which far outweighs the interest on the savings. Pay off the debt and make yourself a solemn vow - never get in this mess again and continue with the way you started, by saving vigorously for the rest of your life. It is a hard habit to get into, but one that literally pays dividends in the long run.

WhenIam64

What is the APR on each. If you have zero APR then why pay it off.

If you are simply paying the interest, then pay it back and pocket the interest yourself. So "free" money you keep. "Expensive" money you pay back in order of expense/costs

would like your perception on it.

Assume you had worked it out but it pays to repeat it for others.

enthusiasticsaver

If you are paying interest on those debts then definitely yes pay them off from savings. Interest is dead money. If they are on 0% that is different and there is nothing to prevent you holding money in savings and paying them off before the 0% deal finishes. However I doubt that Amazon, New Day and Paypal are 0% and Newday is normally quite high interest rates. Surely your "comfort zone" should include no debt? Use the money you were paying off debt monthly to replenish your savings instead and get used to living within your income by budgeting.

datlex

Willing2Learn wrote: »

If it were me, I would always keep some money saved up as my Emergency Fund (EF).

The interest rates are considerably higher for money that you borrow compared to money you can save. It is therefore cost effective to pay down your debts asap, whilst still keeping an EF in place.

Ideally, I reckon people should have enough savings in their EF to provide a six month buffer.

And welcome to the forum Marie1705

Agree with having an emergency fund, but not 6 months worth whilst you have debts. At this stage I would say enough to cover what could need fixing/replacing urgently - e.g. If your washing machine needed replacing- you probably need under £300. Like wise with Fridge/freezer and/or the excess on your house insurance.

Dobbibill

I agree with others - anything on 0% can be chipped away monthly but anything that is costing you money in interest needs to be gone.

Also address the reason for the debt so you can avoid this repeating itself in the future.

Build up the emergency fund monthly - £2500 is a good start for an emergency fund.

Marie1705

Thank you all so much for your replies, my interest rates vary and some are quite high as you say Newday isn't the cheapest.

I am going to pay these off and concentrate on building my savings back up.

shteca

Hi Marie1705, and welcome to the forum. Great question and you have come to the right place.
The big question is, would you borrow £4,500 on credit cards to invest at 1.5%?
Essentially that is what you are doing.
The answer for most people is no. The risk is just too high even if it is at 0%.

I agree with everyone above, get these debts paid off and use the payments you were making to top up your savings in no time! Really focus on saving now and cut up the credit cards and never borrow again.

See you around.

MottledDebt

trailingspouse wrote: »

With total debt of £4,919, and total savings of £7400 (and being able to add to it each month), I would definitely pay off the debts asap.


You'll be left with an emergency fund of £2500, give or take - you can then increase that every month by the £375 that would have gone to servicing your debt, and be back up to £7000+ in just over a year - probably less than a year, as you said you're currently adding to your savings as well as servicing the debts.


Well done!!

This is the best advice imo. The interest on the debt is much much higher than your savings