Pay off which first? Help please

Bringvaluetome

I should have pointed out that £2000 of the credit card debt was a loan to a friend. They have been paying it back. Roughly around £150 per month. HOWEVER as of last week we no longer talk, so I'm not sure if I'll recover the rest owed (it's probably around £1000)

Bringvaluetome

So I've just cancelled both stocks & shares ISA and SIPP monthly direct debits for now.
Will take affect from March.
That's £50 per month that can go towards debt!

middleclassbutpoor

enthusiasticsaver wrote: »

1 Use your cash to buy your new car and keep or build emergency savings up to £1000

2 Stop your monthly payments into Help to buy isa and the SIPP and stocks and shares isa and target your debt to get it repaid.

3 Once the debt is repaid restart HTB ISA and up your workplace pension payments and then focus on the SIPP/ISA. Be wary of trying to do too much all at the same time. If you want to buy a house focus on the HTB ISA. If you are focusing on building up assets for early retirement look to the SIPP.

This is what I would do but I do not know your full circumstances so this might not be best for you. I do know I would not be bothering with small amounts like £25 into SIPPs and stocks and shares isas and £20 into a workplace pension when you have debt. The charges will outweigh the amounts being invested.

Just follow the above for now....

Forget saving - you are in debt repayment phase. Once you have no debt - I would ask your employer what is the maximum amount you can contribute for employer matching. To help you understand why a pension is the best investment you can make...

If your employer says for example - if you pay in 5% we will pay in 8% then you would be mad not to do this.

That is like a guarantee of 160% return on your investment each month.

Let's say a 1% contribution of your gross salary equated to £20 then a 5% contribution will see you pay in £100 and your employer will match with £160. Therefore £260 would go into your pension in total from a £100 contribution.

The next bit of magic is tax relief which actually means that you may only need to put £80 in to get £100 in pension as a basic rate tax payer.

If your employer makes pension contributions by salary sacrifice, you will need to put £100 in but you will save the £20 as the £100 won't be taxed so you get the tax relief indirectly this way.

You just need to know whether your pension comes out before or after you are taxed. If its before then this will mean you need to pay £100, if its after you need to pay £80 and the government will add £20 to your pension for you.

Bringvaluetome

Pension is taken via salary sacrifice. I've checked and the maximum contribution the company will pay is 5%. Even if I paid 25% they'd still pay 5%.

Silver_Queen

Right. Potentially harsh comment coming up.

The trouble here is that you have read bits and pieces here about finances and shares, and you've now tried to run before you can walk.

You've made some classic awful mistakes: investing in things you don't seem to properly understand, borrowing to invest when you don't even have a safety net, lending money to a friend off a credit card, etc. If there was a tick box sheet of things not to do, you've pretty much ticked them all.

However, you're here now to sort it out and you've got plenty of time to, so that's great!

You need to sort out a proper plan.

1. You seem to have a fair amount of spare cash at the moment, thanks to moving back home. This is a great opportunity for you to sort everything out. This was a brilliant financial decision.

2. You say your workplace pension contributes 5%. How much do you have to pay into it for them to contribute the full 5%? Contribute that much. It's salary sacrifice, so you're saving on tax anyway, and it's absolutely worth doing. Your debts are not large and you have spare money. Your pension is a wise use of it.

3. Set up a proper budget including all your monthly spends, as well as annual spends spread across the 12 months so you can save for them appropriately. This INCLUDES your £12 haircut, your £600 on presents, your entertainment, your morning coffee.

4.Pay your debt. You have a credit card on a 0% deal with an outstanding balance. Your 0% deal finishes in 14 months. Divide your outstanding balance by 14, and that's how much you're paying on your credit card each month. If you're still spending on your credit card, stop now. Once this is paid off, put all the money into the loan instead.

5. Pay as much as possible each month on your loan (and obviously at least the minimum) after you've paid your living expenses and the payment on your credit card as per 2.

6. Save the £200 per month for a property. When are you planning to buy? Have you considered S&S LISA instead if you really, really want to invest?

7. 3-6 months' emergency fund. Some would argue that this needs to be further up the list, and it depends on your personal risk appetite. Useful if you find yourself out of a job for a while.

8. The rest can go on SIPP etc.

Bringvaluetome

1. This wasn't planned, didn't have a choice. Although it's probably for the greater good.

2. For the company to pay out 5%, I would need to pay 5% also. That would cost me £70 net per month.

3. I've never budgeted for anything other than rent/fuel and direct debits, so this will be an exciting project for me!

4. Never thought about it that way, as simple as it is...
So £3994 / 14 = £258 per month.

5. I can increase my monthly payment on loan, even if it's £50 extra (money saved from S&S ISA and SIPP, monthly payments)

6. Restart the £200 H2B payments after the debt is cleared? Not looked in to a LISA. Thinking of transferring it to someone like Barclays that offer over 2% instead of the 1.75 I'm currently getting.

7. I'll always try and keep some aside.

8. After debt free?

Bringvaluetome

In relation to a new car, which is a need not a want, would a 0% interest finance deal be any good in my circumstance? I could use spare cash for the initial deposit.

Bringvaluetome

Can anyone bring some colour to this?

Silver_Queen

Do you need a brand new car? What's the point of taking on more debt?

Bringvaluetome

Just want something that will last me. I guess it's not wise to have an £18k car finance package at the moment.