What Would You Do?

purplehippo276

At the start of January I was in hindsight thankfully turned down for a consolidation loan to consolidate £15K of debt, and since then I've hit the debt hard this year, and paid off £8K so far.  I have £3.6K of credit card debt and £1.5K of loan debt and £1.9K of an HMRC overpayment remaining.  All 0% APR.  I currently have a £700 emergency fund, and savings pots for future fixed expenses (e.g. car insurance, MOT and service, Christmas, birthdays, etc).  I have no other savings.  

My job is secure for the next 12 months, until August 2021 as I'm on a fixed term contract, that may or may not be renewed depending on if funding is available for it.  I'm currently focusing on paying off the credit card debt at the moment, and making the minimum payments on the loan and HMRC overpayment, with the hope that the credit card debt could be cleared by February next year.  I had planned to then overpay on the loan, and once it was cleared overpay on HMRC - hoping to clear it all by July next year so I have no debt commitments in case my job isn't continued.  

I've now been thinking, would it best to clear the credit cards in February and then concentrate between then and August on building a bigger emergency fund in case worst comes to the worst, and I'm unemployed?  I worry the job market won't be in a great position come August next year due to covid and Brexit and it may take quite some time to find a new job.  If I was lucky to land a new job fairly quickly, I could then use the big emergency fund to pay off the loans.   

Or, do I stop overpaying it all - pay slightly more than minimum on the credit cards, and build a big emergency fund from now onwards and scrap the idea of being debt free for the foreseeable future?

Or do I continue with my repayment plans, and clear all the debt, so I have no debt commitments during a potential period of unemployment.  I live with my partner and his job is secure as any job is at the moment.  I do have some freelance income, that I make enough on to cover the bare essentials.

I flip flop on what to do on a daily basis, so any input would be great.

Please don't suggest getting a new permanent job as that isn't so easy at the moment!  

blue_eyed_girl123

I guess the question is, what would each option cost you? If it's no more or less expensive to keep an emergency fund and then repay in August 2021 when you're aware of the lay of the land, then that might be your best option. That might also make you feel less panicky about being (hopefully temporarily) unemployed. I hope you figure out the best way forward 😁

purplehippo276

blue_eyed_girl123 said:

I guess the question is, what would each option cost you? If it's no more or less expensive to keep an emergency fund and then repay in August 2021 when you're aware of the lay of the land, then that might be your best option. That might also make you feel less panicky about being (hopefully temporarily) unemployed. I hope you figure out the best way forward 😁

@blue_eyed_girl123 - £2.3k of the credit card debt is 0% interest until April. Then it goes up to something around 21% I think, but I would hope but wouldn’t count on getting a balance transfer as my debt ratio is now much lower than it was in January. The remaining £980 is interest free until Dec 2021. The loan is 0% until paid off, as is the HMRC repayment. 

It’s definitely tricky, I would feel better now working towards paying off the debt, but in the long run I would probably feel better having saved up an emergency fund. Maybe I can find a compromise and split the my overpayments I make 50% to debt and 50% to emergency fund over the next 12 months? 

TheAble

You've done very well so far. If it were me I'd put £100 a month into the emergency fund and otherwise pay off the debts asap. That way you'll be debt free with at least £1900 saved by next August - a decent position.

blue_eyed_girl123

Depending on how much you’re able to pay off the debt each month, could you try and pay off the £2.3k on the credit card before it incurs interest, put the rest as minimum payments, and then pay any remaining (if that works in your budget) to your emergency fund? 

Coffeekup

Going off your previous numbers I'd pay 1k a month roito savings if everything is interest free, then as the credit card ends its first interest free period pay the 2.3k down. Then do the same when contract is up, u should have 6k saved by then. 

enthusiasticsaver

I would go half and half to debt and emergency fund.  Having no debt if you dont get a new job in April will help with outgoings and you certainly do not want to be paying interest as it will be difficult to move to a 0% card if you are unemployed. I would still focus on the credit cards and continue with loan and HMRC payments as agreed.  It looks like you have paid off £8k since January so hopefully that will mean that you can repay the credit card debt by April and save £4k to a bigger emergency fund. 

purplehippo276

Thank you everyone!  Lots to mull over.  Most of my debts are due to high childcare costs, so the one positive in what was a really tough time for us, was that childcare costs were reduced to zero for five months, so I was able to put the £500 savings per month straight to paying down the debts on top of my commuting savings, and savings from not being able to go anywhere.  I'm back to paying for childcare now, so my progress is frustratingly slower, but my sanity is very much thankful for school, childminder and daycare.  

BabyStepper

Well done on clearing so much debt. You've really got this in hand, so good. 

I think the issue of saving or overpaying is pretty much a head - game. What option will help you to feel like you're making progress, you're in charge of your money, and that you have some good habits in place that will continue once the debt is gone? My EF was usually between £0 and £1k when I was paying off debt. Looking back, I was still anxious about an emergency that was more than £1k, and that I'd end up increasing the debt to deal with it. It seemed strange to overpay debt when the cc company were not asking me for that amount of cash. You have some leeway, 2 of your debts have long 0% deals, it would not slow your progress to save the cash instead of overpaying. However, I bet (like me) paying off debt is addictive and you just won't be able to stop yourself from sending big chunks of your savings to debt. 

In your position, I might try saving for a few months, instead of overpaying. See what happens. It might seem like your progress on the debt is too slow and you might want to change tactic later. It doesn't really matter, you'd have the cash there to do that. The important thing is that you're sticking to your budget, not overspending and making conscious choices. 

Good luck whatever you do. You're nailing it.