Large One-Off Payment Management Help

pianoguy80

Hi,

I would be most grateful if someone could help me discern what I should do with a 50k one-off payment I am about to receive from my divorce (likely around 45k by the time I have paid some family and for pension splitting and a few other bits).

I am currently on long term sick leave that is making it difficult for me to work things out. Clearly I want to retain as much cash as possible (boost interest and reduce tax).

I won't be buying a house any time soon. I have my own business I want to start so I understand I need 3 years of books anyway and I'm not well enough to proceed yet anyway. So renting looks like another 4-5 years at least.

I have a final salary pension (12 years worth, not currently adding to it) and want to open a PIP at some point as well as do some investing. However my head isn't in it at the moment to investigate. Main priority is getting out of debt in the most efficient way.

I would like to make sure I have relatively quick access to some money but 5k should be more than enough

I'm a basic rate tax payer.
Have a Halifax Current Account
Have a Zopa Savings Account paying interest as follows:

Instant access - 4.54%
7 day notice - 4.57%
31 - 4.65%
95 - 4.8%

In my mind it makes sense to max out an ISA but wasn't sure how best to increase interest to pay off debts. I see that regular savers are paying quite a lot of interest but then wasn't sure if interest was monthly or annual.

If I have a plan of how to do this I can work to it, its just calculating what the plan is that is giving me a headache.

I have the following debts

2 Loans
Klarna - Purchase 586, Interest at 14.9% = 136 = 722 total (paid 300 to date). It isn't clear if I pay it off early, if the interest would be lower. There doesn't appear to be a settlement figure.

V12 Finance - Purchase 607, interest at 9.89 APR but states interest rate is 5.13% for duration of term, interest added in total is £124.52. Asks to call to get a settlement figure

2 Credit Cards
Sainsbury's - £1,780. Was at 0% interest but it ran out. Because I was in financial difficulty at the time, they created a plan for me which I am still on and unfortunately my credit rating isn't good enough to balance. Whilst I did say when my divorce comes through I will pay it off, I was wondering if they would allow to keep as is and I can pay more a month. But if they add the interest on at 25.69% then clearly this would need to be paid off

Virgin - £6,271. 0% until Feb 2025. My thinking was that if I paid off everything above and continued to make minimum payments to this, by Jan 2025 I would balance transfer what was remaining on this car dot another 0%.

Because now I am a single dad and i'm receiving 75% of my wage due to being on sick leave, money is tight. Obviously I am still making debt payments where required and have a reasonable standard of living considering and i'm still managing to save some (which I could actually put towards debt because I can't go on holiday due to my illness.

So in theory I could put £150 towards debts from my monthly pay.

Any advice would be much appreciated

Angelica123

How long have you been on sick leave for? How long will you continue to get sick leave pay? Is there any plan to return to work? I know you want to start a business - but that's going to be very hard if your health isn't optimum and you are living pay cheque to pay cheque. Would you have the resilience (physical/mental/financial) to handle the stresses of trying to start a new business that may or may not fail? 

The interest rates on your Klarna,V12 finance and Sainsbury are much higher than anything you can get in a savings account so it makes sense to just pay those off once you have the lump sum. Work out how much your balance will be on your Virgin Credit once your 0% period ends - and lock that amount in a 1 year fix/notice account so that have the money available to pay off that credit card once the 0% period ends. 

Albermarle

This forum may be of more use initially.
Debt-free wannabe — MoneySavingExpert Forum

grumbler

pianoguy80 said:

....
Instant access - 4.54%
7 day notice - 4.57%
31 - 4.65%
95 - 4.8%

In my mind it makes sense to max out an ISA but wasn't sure how best to increase interest to pay off debts. I see that regular savers are paying quite a lot of interest but then wasn't sure if interest was monthly or annual.

.....

I have the following debts

2 Loans
Klarna - Purchase 586, Interest at 14.9% = 136 = 722 total (paid 300 to date). It isn't clear if I pay it off early, if the interest would be lower. There doesn't appear to be a settlement figure.

V12 Finance - Purchase 607, interest at 9.89 APR but states interest rate is 5.13% for duration of term, interest added in total is £124.52. Asks to call to get a settlement figure

...

Any advice would be much appreciated

Even 8% interest on saving cannot help with paying off debts at 10-15%. You have to use as much as possible from your money to pay interest-bearing debts off ASAP.

MSE: Repay debts or save?

pianoguy80

Angelica123 said:

How long have you been on sick leave for? How long will you continue to get sick leave pay? Is there any plan to return to work? I know you want to start a business - but that's going to be very hard if your health isn't optimum and you are living pay cheque to pay cheque. Would you have the resilience (physical/mental/financial) to handle the stresses of trying to start a new business that may or may not fail? 

The interest rates on your Klarna,V12 finance and Sainsbury are much higher than anything you can get in a savings account so it makes sense to just pay those off once you have the lump sum. Work out how much your balance will be on your Virgin Credit once your 0% period ends - and lock that amount in a 1 year fix/notice account so that have the money available to pay off that credit card once the 0% period ends. 

Hi and thanks for your reply. My business is holistic health coaching. Bit of a paradox I know. It’s online and I’ve created the bones of it already. 

The other point of view is. Do I deal with the stress of never launching my business? Once I go back to work full time and try to start it while doing that and caring part time for my kids. I’ve been there and done that already. And in part it got me sick. 

I’m on work insurance for another 3 years so I have time and space to test things out once I’m well enough. The idea is that I can take it one client at a time. It’s not like a brick and mortar business

Bigwheels1111

As above service the debt at higher rates than the interest you would receive.
Without any debt, keeping to a budget will be easier.
I keep 2 types of emergency funds.
Easy access and isa.
For eg, isa with say interest penalty of 60, 90, or 120 days .
My penalty is around £200, on 10k.
Cheaper option than loans etc.