Credit Card debt v Savings

Dunree

I'm not sure if this is the correct place to post this, if not please delete

I have a CC debt of around £4k with John Lewis at 24.49%. I currently pay a minimum of £100 but usually more. 

I have around £2k in savings with M&S at 2% interest.

Is it better to just use the £2k to reduce the JLPC or keep the money in the bank?

If I pay the £2k towards the JLPC then I have no savings or back up money but I still have my CC's if needed.

Any thoughts?

Brie

Definitely put the savings against the card debt.  That savings account gets you about £40 a year but the JL costs you nearly £1k!!!

will do a bit more maths on this.....

Brie

ok so more simple maths.....

Let's say you consistently pay £100 a month on the JL card.

In month one you will be charged over £80 interest and, having paid £100, still have £3980 left to pay.  Continue like that and after 2 full years you will have paid £2400 of which nearly £1840 will be interest.  So in 2 years you go from owing £4k to still owing about £3840.  On the plus side you'll have earned less than £100 in interest on your savings.

Instead let's say you take that £2k savings and throw that at the JL card so your balance at the beginning is £2k instead of £4k.  And you still pay £100 on the card.

In month one you will be charged about £40 interest and, having paid £100, still have £1960 left to pay.  Continue like that and after 2 full years you will have paid £2400 of which only £590 will be interest.  So in 2 years you go from owing £4k to still owing less than £200.  On the down side you'll won't earn that £100 of interest on your savings.  But who cares as you are waaaaaaayyyyy ahead. 

So after 2 years owing £3740 versus £190.

Dunree

Wow, seems a no brainer...

Thank you Brie

Brie

Have a look at submitting a SOA if you haven't already and maybe others here can make suggestions so you can speed up the process by budgeting etc.

Good luck!!  It's something a lot of us have been through and lived to tell the tale!!!

Dunree

Thank you very much Brie

I've just paid the £2k towards the card.

I'm lucky in that it's the only debt I have. 

May even do a BT when I get the time to have a closer look at what's on offer..

400ixl

I wouldn't have put it all against the credit card, I would have kept some for the emergency fund (maybe £500) and the rest to the card. That way you have money in case you can't pay the credit card bill one month (you can't put that payment on the card). 

And move that emergency fund to a better account as you should be getting at least double that 2% interest on easy access accounts.

JohnBrown53

It makes complete sense to pay some of your savings off the credit card because otherwise you are effectively exchanging 24% for 2%. However its important to retain an emergency fund and not to start using the credit card again. Credit cards have their uses as some come with insurance and you can clear the balance without interest in the short term, but I would try to avoid them for larger purchases due to the high interest rates. Another good idea is to leave them at home before going out shopping to avoid impulse purchases.

sparks_2023

Don't forgot the credit cards can suddenly reduce your limit without warning, so to rely on having that credit for an emergency carries a risk.

enthusiasticsaver

I would have paid it all off the card so good you have done that. Try and pay more than minimum. Minimums are fine for 0% cards but not when you are paying almost 25% interest. 

kimwp

I agree with using savings to pay it off the credit card when you can use the credit card for an emergency. There was a good point raised about a situation where you couldn't pay the monthly credit card bill. If that's a possibility, it might be worth building up a small fund, but I can't help thinking that would be job loss without redundancy pay scenario, in which case you'd have a lot more to cover than your credit card bill. Might be worth considering still.