Worried about £13k savings vs debt

Willsnarf1983

thaylock i know where ur coming from but as long as ur controlled surely that £120 is good enuff reason for waiting 6 months???

Will

MSE_Martin

I understand the cross-over of advice here. So let's break down the choice.

Debt usually costs more than saving earns.

E.g. £1,000 debt at 18% costs £180 a year
£1,000 saving at 5% pays about £40 a year (after tax)

Therefore pay off the debt with the savings and you are £140 a year better off

Ah yes, but what about the emergency fund?

A good point. However, provided you still have the credit card, then you still have access to reborrowt he £1,000 (stickign with teh above example) if needed, yet in the meantime you are not paying interest. Of course this money should only be borrowed in extremis.

Ah yes, but AGAIN, some of this is cheap 0% debt?

Mmmmm tricky devil ain't we. Yes here by keeping the debt at 0% and just paying a minum payment it is better to have the debt and the saving at the same time as you are earning money on it. This is effectively a form of stoozing (earning money from debt), and something i generally advocate.

However, its only for people who keep a careful control of their finances, and manage it carefully.

In your circumstance therefore there are three options all of which can work, and all of which first involve paying off the 18% debt.

Option 1. If you're super savvy

Then keep the 0% debt, pay minimum repayments, and then balance transfer it to another 0% card at the end of the period - to keep profitiing

Option 2. If you're reasonably on the ball

Keep the 0% debt until 1 month before it ends, then pay it off.

Option 3. If you ain't the best with money, and debt makes you worry

Pay the 0% off now too, while it won't make you the best, its better than messing things up and making a mistake in the future.

Martin

Tony_H_3

It would appear that you can obviously meet your two credit card debt payments.

In addition to the sound advice offered by Martin, you could apply for a new 0% card right now & BT (Balance Transfer) the 18.9% card to it.

This means you will now have:

1. Your savings earning interest.

2. Your less than 6 months credit card @ 0%

3. Your new credit card at upto 18 months 0%

Happy Stoozing

Xbigman

I say pay off the debts. Anyone who runs up 8.3k of debts on credit cards should only ever pay off those debts given the chance because they have not in the past had the discipline to handle money, so why should they now.

Also, safety nets are a two edged sword. Over 3k in savings you start to lose benefit entitlement. If you are concerned about redundancy then you should have 3k in savings and 1k in cash under the bed.
Regards



X

thaylock

MSE_Martin wrote:

Option 3. If you ain't the best with money, and debt makes you worry

Pay the 0% off now too, while it won't make you the best, its better than messing things up and making a mistake in the future.

Martin

I still say pay off the debt, Martin (as financially astute as you are), I don't agree with what you are saying about option 3. Personally, I own 2 houses (no mortgage - paid cash for 1, paid other off in 6 years, how have I done this ? simple, work hard & make sacrifices, won't be long now before I take time out to start smelling the roses) + 1 buy to let (which will be paid for in 2 years), I am 38, I have no debt (apart from £5 on my credit card), & I am very good with money, & debts don't worry me, personally I think this is bad advice, but then again, each to their own. There is nothing wrong with debt as long as it serves a purpose, personally I don't want for anything therefore I have no debt. Sorry, but this comment rattled my cage.

MSE_Martin

thaylock i'm not sure i understand your issue?

This is a balance between the most profitable route (stoozing) if it is done correctly and the least profitable route (within the correct parameters obviously, ie excluding continually running up debts at high rates and paying them off) which is paying off a 0% debt while you have savings.

Neither are right or wrong However

Stoozing is more profitable but more difficult (plus risk of forgetting)
Paying off is less profitable but easier to do (and no risk of forgetting)

I'm confused as to your issue

And yes, tony to be a full fledged stoozer you could BT the card at 18.9% to 0%, then again you could also stooze via a Super BT on top of that, however this is the debt free wannabee board, so i think those options are best left elsewhere (ie credit card board)

Willsnarf1983

thats very applaudable what u have done thaylock but not everyone is like u, paying of the debts now doesn't mean that teh guy will not be any less responsible than if he keeps the debt thats not costing him anything for 6 months...£120 is £120 at the end of the day. obv pay of the 18.9% one

Will

YorkshireBoy

Bearing in mind the OP's recent posting highlighting the background to his current 'troubles'...

http://forums.moneysavingexpert.com/showthread.html?p=584079#post584079

...I'd say the best option would be to pay off all the debt from savings, cut up the credit cards, and start a fresh.

thaylock

I don't have an issue, I have calmed down now. I think your option 3 was a generalisation. OK, say this guy waits 6 months to pay off his loan, who's to say in 6 months time he will have the money, he might be tempted to squander it, atleast if he pays off his loan now then it's a done deal. I just don't understand why people want to retain their debt for the sake of making a few measly quid, If people really want to make/save money, then try not going out for a month, try not using your mobile phone, try not having Sky, try not smoking, try not drinking, try not taking a holiday, try not owning a nice car, but then again maybe these things are too hard for people to do, but you will make alot more that £120 I mentioned earlier. I recently helped my g/f pay £2500 (in 4 months) to clear an overdraft & storecard, I am well aware I could have advised her to take out a 0% balance transfer deal to pay these debts, but come on, the debt has to be paid sooner later, I just can't see the point of messing about for years on end managing the debt when you have the funds to do it NOW ! My g/f found it hard to make the payments, but she is over the moon now, she sleeps better at night & feels much better about her financial position, she has other debts & now she has the belief she can pay these off, she hopes to pay several lump sums over the next 2 years, then she should be debt free. Let's get out of this 'it's OK to have debt' culture, please. She is on a tight budget (that I set initially, but now we both work it out at the start of each month), I also purchased Martins 'Money Diet' book for xmas which she appreciated & enjoyed very much. For several years now I have told my g/f to sacrifice a year of her life to spend as little as possible to clear up her debt, well this year she finally listened & it is paying dividends, she has money in the bank - up until now her a/c has always been in the red & she still finds it hard to believe how much money she is able to save just by applying discipline & sticking to a budget.

Willsnarf1983

thaylock there is the differance between ur gf and the op, the op already has the majority of the debt on an interest free option and so theoretically could do what u mention and have no life for a year and pay of the debt that way as well as keeping the debt for 5 months and then paying it off after accruing the £120....either way as u said its doen to peoples opinion and their own preferances.i can see arguements for both ways and my personal way wud be to keeep the debt and and earn the interest

Will