What Would You Do?

Gareth_Ainsworth

Evening all,
Just looking for advice on what you what would in my situation.
A year ago, we had around £13,000 in debt but servicing this has been absolute fine (fortunately), so we have been continuing to do up our house while paying down the debt. For example we have just spent £2500 on new doors - we popped the payment on our CC and paid off within 3 months (we have around £1000 extra each month after bills etc)
Our debt currently stands at £5755.50. This consists of £5205.50 (Loan from Tesco Bank until 05/23 - was used to buy our car - paying off £179.50 a month) and £550 (0% CC until 12/21 - paying off around £50-£100 a month).
We currently have £5000 saved in an emergency fund, and another £5000 saved as we are saving up to buy a small camper (around May 2021)
So my question to you....
Would you use the £5000 emergency fund to pay off the loan? The settlement figure has been quoted as £5047.69 (valid for 30 days). The interest on the loan is only around 2-2.5%. The saving therefore is only around £158 to pay off early. Of course I'm getting pretty much nothing in interest on the savings so thinking of pay it off. This would leave the emergency fund at £0 and we would have around £250 extra per month which can go straight back into building up the emergency fund, and if needed, we can dip into the camper fund.  
OR...
Keep it going as it is. Leave the emergency fund at £5000, continue to pay the £179.50 & £50-£100 for the two bits of debt.

One day I'm swaying one way, the next the other. What would you do in my situation?
Thanks very much.

Cat87

I'm in a similar situation and have decided to clear most of our debt so that our outgoings are less and we can slowly build up again without the anxiety of the debt. That being said its not a big debt you have, and your managing well, so I can see the arguments for both sides! 

MidsHollie

Pay it off with your camper savings. With the £1000 per month left over and the £250 per month from the debt, you’ll have the original amount saved up by April. Then adjust your priorities to get the outstanding amount for the camper, work harder to earn extra money to get it quicker, or wait until you have all the money saved up for it

TheAble

Good question. I would pay it off, and then your camper fund becomes the emergency fund, should you need it. It's not so much for the cost saving, although that's worth having, but it will free up your mind and you won't have to worry about it any more (you admit yourself you are thinking about it every day).
Good things tend to happen when you're free of debt.

Gareth_Ainsworth

Cat87 said:

I'm in a similar situation and have decided to clear most of our debt so that our outgoings are less and we can slowly build up again without the anxiety of the debt. That being said its not a big debt you have, and your managing well, so I can see the arguments for both sides! 

Yeah it's tough to decide. If the loan interest rate was higher on the loan, or we were earning a decent amount in interest from the savings, it may help us sway either way.
It would make me feel better knowing this debt is taken care off leaving just the 0% CC. It's not a huge amount a month, it was originally £10,700 loan for 5 years which we've just past the halfway point. Our jobs are as safe as they can be, but who knows whats round the corner - then again if we were to lose our jobs, we wouldn't be spending money on a camper and that can become our emergency fund.
So torn!

enthusiasticsaver

Gareth_Ainsworth said:

Evening all,
Just looking for advice on what you what would in my situation.
A year ago, we had around £13,000 in debt but servicing this has been absolute fine (fortunately), so we have been continuing to do up our house while paying down the debt. For example we have just spent £2500 on new doors - we popped the payment on our CC and paid off within 3 months (we have around £1000 extra each month after bills etc)
Our debt currently stands at £5755.50. This consists of £5205.50 (Loan from Tesco Bank until 05/23 - was used to buy our car - paying off £179.50 a month) and £550 (0% CC until 12/21 - paying off around £50-£100 a month).
We currently have £5000 saved in an emergency fund, and another £5000 saved as we are saving up to buy a small camper (around May 2021)
So my question to you....
Would you use the £5000 emergency fund to pay off the loan? The settlement figure has been quoted as £5047.69 (valid for 30 days). The interest on the loan is only around 2-2.5%. The saving therefore is only around £158 to pay off early. Of course I'm getting pretty much nothing in interest on the savings so thinking of pay it off. This would leave the emergency fund at £0 and we would have around £250 extra per month which can go straight back into building up the emergency fund, and if needed, we can dip into the camper fund.  
OR...
Keep it going as it is. Leave the emergency fund at £5000, continue to pay the £179.50 & £50-£100 for the two bits of debt.

One day I'm swaying one way, the next the other. What would you do in my situation?
Thanks very much.

I would not take your emergency fund down to 0% but I would maybe look at overpaying the loan to get it cleared quicker.  The interest rate is quite low so I don't think it is critical from an interest point of view although undoubtedly you are not getting 2-2.5% interest on savings. Can you make a lump sum repayment of say £3k and overpay the loan until it is gone then build the emergency fund back up again?  How secure are your jobs? 

I would not worry about the credit card as that will be paid off before the deal finishes. 

Matt8888

I'm not getting why this is a dilemma at all. Sorry if I have missed something. You have about £10K in savings and £6K in debt. You want to buy a camper van in May. Pay off the debt now, and if all stays fine and dandy, you'll have enough to buy the camper van in May as well as keep an emergency fund. If all does not stay fine and dandy for any reason, don't buy the camper van until you can afford it and be glad you have paid off your debt. I think it's a no brainer.

thegentleway

Matt8888 said:

I'm not getting why this is a dilemma at all. Sorry if I have missed something. You have about £10K in savings and £6K in debt. You want to buy a camper van in May. Pay off the debt now, and if all stays fine and dandy, you'll have enough to buy the camper van in May as well as keep an emergency fund. If all does not stay fine and dandy for any reason, don't buy the camper van until you can afford it and be glad you have paid off your debt. I think it's a no brainer.

Agree with this

Gareth_Ainsworth

Thanks for all your comments - I think I just needed to hear it from others. All paid off this evening

Agentmomo

Hi Gareth, I agree mostly with the above advice. What I would additionally say is that a camper van life is a great life. Significantly cheaper holidays and great fun! I was in a very fortunate position to receive an inheritance whilst still in some debt at that time, For me it was a 50 / 50 choice, I got a camper van but I also laid down a lot of my debts, There is something quite cathartic about clearing a credit card debt completely whilst still splashing out so to speak. One word of warning on Camper vans, Insurance is very high for a fully converted van, bear this in mind, but mostly enjoy... Be good to hear your debt free continuation story and your camper van journey.   

datlex

thegentleway said:

Matt8888 said:

I'm not getting why this is a dilemma at all. Sorry if I have missed something. You have about £10K in savings and £6K in debt. You want to buy a camper van in May. Pay off the debt now, and if all stays fine and dandy, you'll have enough to buy the camper van in May as well as keep an emergency fund. If all does not stay fine and dandy for any reason, don't buy the camper van until you can afford it and be glad you have paid off your debt. I think it's a no brainer.

Agree with this

another vote for this.