Paying credit card with savings

Soph84

I don't know if I should use some of my LISA savings to pay some of my credit card off. I try and pay a little more than the minimum payment. I looked at a balance transfer but since Aug 2020 my credit rating went down to fair and stayed the same rating. With this lower credit rating it is giving me very little in balance transfer card options. Nothing has changed e.g. I am still working full time, not been furloughed, paying all direct debits etc on time so I don't know why my rating has went down to fair.

I would use only use 1/4 of my LISA and aware I'd lose 20% bonus. 

[Deleted User]

Don't worry about the made up credit rating.  You can tell people it's whatever you want it to be. No one will ever know or care.

But if you're paying interest on a debt while having savings, pay it off, unless the bonus loss is greater than the interest.

Emmia

Are you currently saving into your LISA? If you are I'd probably stop those payments for a few months in order to clear the credit card debt - rather than taking money out of the LISA 

Soph84

I haven't been saving into my LISA every month but I need to get back into saving regularly. I'd lose £200 bonus for taking out £1000 but that's a lot less than the interest. The interest rate for the credit card is 19.1%. 

[Deleted User]

No harm in another application for a lower end BT card again if you last looked in August, even a sub prime with 12 months would allow you to hit the balance hard

callum9999

Soph84 said:

I haven't been saving into my LISA every month but I need to get back into saving regularly. I'd lose £200 bonus for taking out £1000 but that's a lot less than the interest. The interest rate for the credit card is 19.1%. 

How big is the debt? You'd need to not be able to make any significant payments for over a year before the interest starts getting more expensive than the withdrawal penalty.

Soph84

Debt is £2885, I'd be looking to pay £1000 using my LISA savings so a chunk has been paid.
I've had a look at BT cards already and the options are rubbish. 

[Deleted User]

Soph84 said:

Debt is £2885, I'd be looking to pay £1000 using my LISA savings so a chunk has been paid.
I've had a look at BT cards already and the options are rubbish. 

What offers are you getting? If you get even 6 months with 0% interest that is 6 months more you can reduce your debt, even if it's say a fixed interest rate of whatever 5% over the balance life, it's still going to save you money and clear the balance faster

callum9999

Soph84 said:

Debt is £2885, I'd be looking to pay £1000 using my LISA savings so a chunk has been paid.
I've had a look at BT cards already and the options are rubbish. 

Thinking about this a bit more, is it not better to just pay off the whole lot (assuming you can't get a balance transfer)?

If you need to withdraw from your LISA, that presumably means you'll be unable to save the £3k this year? In which case, you wouldn't be maxing out your LISA contributions anyway, so you can just withdraw it all now, pay it off, then start paying into it again. Yes there's the 20% penalty, but you'll be getting it back when you put the money back in.

I'm doubting myself though, so hopefully someone else can advise if that's wise or I'm missing something.

Emmia

Can I ask what may be a daft question - do you have no other savings other than the LISA or did you have them, but have burnt through them?

Although the govt. bonus for the LISA is nice, I'd advise that as the LISA is (probably) long-term you should ideally have some accessible ("penalty free") savings too to cover (short term) situations like this - although I can see that "free money" is an attractive incentive to only save into the LISA if things are tight.

Soph84

I have another savings account but had to use it for car service etc. It's hard trying to save in a LISA and have other savings while you are living on your own and paying all the bills yourself.