Debts v savings - what to do?

Bunga12

Hi. I have a debt of £10,000 with my bank (Nationwide). 2.9% APR so £179.07 over 60 months. (I just re-financed this from Lloyds where the APR was 14% and I was paying £290pm.) This is completely affordable with my current salary (£45,800pa / £2670ish net pm). I also have a mortgage with Nationwide with c£190k outstanding. I'm 49 and hoping to retire at 65. Pensions are all fully funded. I have savings of £4900 in my ISA. I am currently saving £7-800 a month but this will drop to around £500 outside lockdown.
I want to get rid of the £10k debt, preferably before I need to re-mortgage in November 2021 so around 18 months. Maths isn't my strong point but 18months x £179.07 = £3223.26 meaning I'd have around £6800 left outstanding (obviously there will be interest too). I'm saving for two holidays this year (big birthday) plus trying to sort my very overgrown and dilapidated garden. Would you:
1. Continue as is. Pay the £179. Continue to save into the ISA to build up my emergency/holiday/house fund.
2. Keep the £4900 for emergency/holiday/house fund and put the monthly 'savings' to the loan.
3. Pay the £4900 off the loan, pay an extra £500pm to it alongside the monthly payment and be loan free by Christmas. Put the garden on hold and put the holiday on my 0% credit card then clear in Q1 2021. Be debt free by Easter 2021.
I totally appreciate there are other people worse off than me during these awful times and this isn't really a life or death situation. Plus I think I've answered my own question by writing it all down. But has anyone got any thoughts or ides on what I should do?
Thank you.

DrEskimo

Keep £1,000 aside for emergencies and use the rest of your savings towards the debt. Use the surplus money to overpay the loan. Then start saving for a fully funded emergency fund (6-12months expenses), then save for the holidays and garden. If this isn't possible in the time frames given, then either cut costs further in your budget, take on further work for additional income, or delay these/reduce the costs.

Don't use credit, even at 0%. Save up and pay for them when you are able to.

sharpe106

Out of your options I would go for 3.

However what is your interest rate on your mortgage?

What kind of ISA do you have? Stock/shares or cash? If cash probably best getting rid of for short term.

How much would the garden cost approximately?

But if it was me I would keep 3 months of living costs (mortgage, food, bills etc) as a safety net. Then I would look at paying of the loan and then look at the garden afterwards. I would put the holidays on the 0% if you could and pay that back as and when before got charged interest on it. Although if being debt free is your objective could you not cut your holidays to one? As it will be unlikely be able to travel much anyway for quite awhile.

Bunga12

Hi @sharpe106
I'm not sure of the mortgage rate but I'm tied in until November 2021 anyway. The ISA is just a cash account, through my bank.
The holidays are booked however not paid for (and it's looking like the first one will be cancelled anyway - 2 weeks in a caravan in the UK). The 2nd one is NY and I've paid the deposit. It may get deferred to next year which will be sad for me but good for finances.
3 months of living costs would be about £6k so I'm not there yet. As a single parent, I worry about losing the savings I fdo have although job is secure (as secure as it can be).

ryanm8655

Personally I’d go for option 3 if your job is secure (presuming public sector?).

Likelihood is you won’t have any holidays for the foreseeable anyway, so doubt you’ll need the 0% deal.

I don’t see the issue with using the 0% deal though, as long as you have a strict plan to pay it off (having fallen into the 0% trap before). You’re not using it to fund a lifestyle you can’t afford, you’ve clearly got the savings. 

What was the loan for? I assume home renovations or something rather than you couldn’t afford your lifestyle and consolidated debt?

Interest rates on cash ISAs are terrible are they not? Typically below inflation so your money is losing value. If you are saving is there a better way? If you have a nationwide flex direct account they did offer 5% interest on balances up to £2500. You can still get that rate if you were an existing customer.

Bunga12

@ryanm8655 The loan was because I had some stuff to pay for when I moved in and the deposit wiped me out. My salary is more than enough to live on and save though so once it's gone there won't be any more. Priority is then to clear down mortgage ready to retire. Job is private sector but financial services and I'm still doing the same job but from home.
I will look into the current account thing. I did have that when I first opened it but I thought it dropped away. I agree about the holidays but I'm just not quite ready to accept it yet.. Thank you for your help.

ryanm8655

Bunga12 said:

@ryanm8655 The loan was because I had some stuff to pay for when I moved in and the deposit wiped me out. My salary is more than enough to live on and save though so once it's gone there won't be any more. Priority is then to clear down mortgage ready to retire. Job is private sector but financial services and I'm still doing the same job but from home.
I will look into the current account thing. I did have that when I first opened it but I thought it dropped away. I agree about the holidays but I'm just not quite ready to accept it yet.. Thank you for your help.

I’d say go with 3 then. If you are sensible financially then 0% cards make sense, you may not need it anyway depending on lockdown. 

I understand people being risk  averse and saying save, don’t use a 0% card but you have saved, you aren’t in financial dire straits and have plenty of surplus income. Saying no to holidays until you have an EF of up-to a years expenses seems a bit extreme for someone in your financial position, you’ve got to have balance and live a little. By all means build to that but not by punishing yourself when you don’t really need to. But I’m the one in debt so...

Bunga12

@ryanm8655 I might do 3 but in reverse. Overpay until Christmas as planned and then pay off the balance from savings. Rather than emptying the pot upfront. Would make me feel more comfortable. Lots to think about though. I appreciate your time to reply.

datlex

I think you need to define what savings are actually for.  It's fair enough to want a holiday especially for a big birthday but £4900 would be a lot to potentially spend.  I would look at separating out savings into more distinct classifications.

Bunga12

@datlex would you put the savings into separate accounts?