Help! I need advice on using savings to pay off debt

OnceUponATime

Hi all,

I need help as whether I should do this or not.

I have put together a schedule to clear my debt using the Dave Ramsey Snowball method. I had a total debt of £13,400+ and the plan was to clear the entire debt by next year December/early the following year, 2022. However, this has now all changed as I received notice from HMRC that I owed them an additional £5000. Bringing the entire amount to approximately £18,600.
Within the debt there are a couple of 0% interest CCs and I have a personal that has about £6000 remaining to be paid and the interest rate is 3.6%. The interest on the HMRC debt which totals approximately £7000 has an interest rate of 4.25%.

I have a help to buy ISA that I have been saving in for a a while now, paying in the maximum of £200 per month. I have just over £11000 saved in it and I am not likely to buy a home for another 1-2 years. So, knowing that I will have to start again if I withdraw the money and I know that I will not be able to put in over the £200 per month when I restart, as 200 is the max. I suppose I am wondering whether it would be wise to clear out the account completely to pay as much as I can of both of the debts that have interest- HMRC and the personal loan debts? And then when I don't owe these sums where I should then place the extra money that I will have left every month which will likely be in excess of approximately £800 every month?

I hope that all makes sense. Any advice would be greatly appreciated.

Thanks in advance!

Willing2Learn

If it were me, I would use the savings to settle any 'priority accounts' (such as HMRC), then use half of my remaining savings on clearing the accounts with the highest APRs. I would then transfer out from my savings account £1,000 to another account, as this would be my Emergency Fund (EF). The remaining debts can then be cleared using the Dave Ramsey snowballing method.

This is only provisional advice, based on limited information. For best advice, guidance and support you would have to provide us with your completed SOA (Statement of Affairs). If you are going to post up your SOA in this thread, then please remember to click on the 'format for MSE' button, near the bottom of the form.

https://www.lemonfool.co.uk/financecalculators/soa.php

EssexHebridean

I'd compromise if it were me I think - I'd certainly use savings to clear the HMRC debt - not least as this is not something you want hanging about. Have you addressed the issue that caused you to run into debt with HMRC? If this is as a result of miscalculation for self-assessment tax then ensure that you over-allow for the future.

Once HMRC are sorted I'd then look to continue with your snowballing plan as previous - throwing every spare penny at clearing the loan early if it allows you to do so, but also keeping a close eye on ensuring that you can either clear the cards when the 0% periods finish, or at least transfer them to new 0% deals.

As for where your surplus should go for savings over and above the limit imposed by the HTB ISA, then into the highest interest savings accounts you can find - OR a combination of current accounts that pay interest on a particular balance. There are a few banks still offering regular savers as well - these tend to pay anywhere from 2.5 - 5% but only on a capped amount being paid in per month - often £250 or £500.

DD265

How old are you OP? If you're under 40, you could look at a Lifetime ISA. This allows you to pay more in per year (£4k), and at any point during the financial year. You need to have had it open for at least 12 months before you buy a house, but you can open one immediately with £1. You could put £4k in now, then build up another £4k from April. You can only get the bonus from one of the accounts, so you'd have to put the rest in a high interest savings account.

I agree with the others that I'd definitely pay the HMRC debt off.

[Deleted User]

I'd be wary of drawing out all the money in the HTB ISA as they will be closed to new savers at the end of this month, I would be tempted to pay off the HMRC bill.

enthusiasticsaver

I would use the money to clear the priority debt and interest charging debt but don't close it as there may not be an opportunity to open one again.

You need to sort your budget out so you do not build this debt up again.

OnceUponATime

Thanks for all your advice guys, just seeing the responses now as haven't been receiving any notifications to inform me that people responded.
I have been really stressed out by it all to be honest and have been picking up extra work where I can. Still need to do my SOA, will do it today as I am a little less stressed out today and will hopefully provide a better picture. Thanks again for taking time out to advise me ������

[Deleted User]

When is the additional £5000 to HMRC due?

Humdinger1

Onceuponatime

It's worth checking that you really do owe HMRC this money. Their accuracy isn't what it used to be as a lot of very experienced people left several years back and they've never really recovered.

Can you talk to an accountant?

Otherwise agree with all the advice above.

Good luck and keep us posted Humdinger