Prioritize Clearing CC Debt, or Saving?

ryandotdee

Hello!

I would love to get some advice on how to move forward with my finances.  A little backstory :

1. I have never been good with money, driven by a fairly compulsive and impatient personality, I have always been in various levels of debt throughout my adult life.

2. Recently ( 2 years ) divorced, my ex was also not great with money, and we had clocked up about 35k of credit card debt between us at the point of separation.  Whilst misguided, I decided to take on roughly 75% of the credit card debt when we divorced, as i still cared strongly for her at the time and felt that showing her how much i cared ( not just in financial terms ) would make her change her mind .  But looking back now I am kicking myself.

3.Have worked hard in my career, and currently have a reasonably well paid job, I have cleared approx 16k of debt recently with a combination of all of my limited savings and a share save scheme which matured.


So as things stand, I still have a bunch of CC debt, and some in store finance type things going on.  all of my CC debt is currently on 0%, and I have approx 7 empty CC`s which frequently have 0% deals on them.  

I am fixated on being "debt free" but, I cant help but think that I would be better off saving my surplus cash instead of paying off extra on the 0% cards? As things stand I have about £1500 in my emergency fund ( Vanguard S&S ISA ) and a float of about 1k in the bank.

SOA : 

Household Information

Number of adults in household........... 1

Number of children in household......... 2

Number of cars owned.................... 1

Monthly Income Details

Monthly income after tax................ 3476

Partners monthly income after tax....... 0

Benefits................................ 0

Other income............................ 0

Total monthly income.................... 3476

Monthly Expense Details

Mortgage................................ 903

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 95

Electricity............................. 15

Gas..................................... 10

Oil..................................... 0

Water rates............................. 22

Telephone (land line)................... 0

Mobile phone............................ 38

TV Licence.............................. 13.25

Satellite/Cable TV...................... 15

Internet Services....................... 34

Groceries etc. ......................... 250

Clothing................................ 50

Petrol/diesel........................... 150

Road tax................................ 15.75

Car Insurance........................... 67.32

Car maintenance (including MOT)......... 25

Car parking............................. 10

Other travel............................ 0

Childcare/nursery....................... 32

Other child related expenses............ 60

Medical (prescriptions, dentist etc).... 0

Pet insurance/vet bills................. 60

Buildings insurance..................... 15.07

Contents insurance...................... 0

Life assurance ......................... 12

Other insurance......................... 0

Presents (birthday, christmas etc)...... 60

Haircuts................................ 20

Entertainment........................... 500

Holiday................................. 200

Emergency fund.......................... 500

Total monthly expenses.................. 3172.39

Assets

Cash.................................... 1000

House value (Gross)..................... 230000

Shares and bonds........................ 1500

Car(s).................................. 4000

Other assets............................ 700

Total Assets............................ 237200

Secured & HP Debts

Description....................Debt......Monthly...APR

Mortgage...................... 178000...(903)......4.7

Total secured & HP debts...... 178000....-.........-  

Unsecured Debts

Description....................Debt......Monthly...APR

Virgin 1.......................6890......75........0

Virgin 2.......................5872......55........0

Natwest........................4864......49........0

PayPal.........................700.......25........26

AO.com.........................1600......0.........0

Total unsecured debts..........19926.....204.......

Monthly Budget Summary

Total monthly income.................... 3,476

Expenses (including HP & secured debts). 3,172.39

Available for debt repayments........... 303.61

Monthly UNsecured debt repayments....... 204

Amount left after debt repayments....... 99.61

Personal Balance Sheet Summary

Total assets (things you own)........... 237,200

Total HP & Secured debt................. -178,000

Total Unsecured debt.................... -19,926

Net Assets.............................. 39,274

kimwp

One thing you could consider is whether it would be worth increasing your pension contributions to bring your salary below £50k, allowing you to claim child benefit.

Regarding saving instead of paying down your debt, it would make sense to build up savings pots to pay off the cards when they get to the end of the 0% periods and only transfer what you have to to another card. With one caveat- you mention your debt being driven by your personality. If there is a chance that you might spend these pots instead of paying off the debt, then you would be better to make a regular overpayment, maybe when you get paid.

Do you actually save £200 + £500 a month into a holiday savings account and emergency fund account?

NB, usually emergency funds are in cash as stocks and shares might lose value, leaving you in a pickle at crunch time.

ryandotdee

kimwp said:

One thing you could consider is whether it would be worth increasing your pension contributions to bring your salary below £50k, allowing you to claim child benefit.

Regarding saving instead of paying down your debt, it would make sense to build up savings pots to pay off the cards when they get to the end of the 0% periods and only transfer what you have to to another card. With one caveat- you mention your debt being driven by your personality. If there is a chance that you might spend these pots instead of paying off the debt, then you would be better to make a regular overpayment, maybe when you get paid.

Do you actually save £200 + £500 a month into a holiday savings account and emergency fund account?

NB, usually emergency funds are in cash as stocks and shares might lose value, leaving you in a pickle at crunch time.

Thanks for the response, I was not sure exactly how to "split things out" on the SOA, essentially I pay about £7-800 into my Isa each month, which I split between the emergency fund and holiday entries on the SOA.

When the divorce first happened, my finances were toast, especially with the solicitors fees, having to buy my ex out of the house etc.  I also took on a lot of the childcare costs etc, so it has basically taken me these past 2 years to get back on track, culminating in the 16k payment in December which wiped a lot of debt.

I think that over the last 2 years I have gotten a lot better with money, and overcome a lot of the negative personality aspects which let the balances get so high in the first place, so now I am trying to understand ultimately what is going to be better for me in the short to mid term, throw everything I have spare at the debts, or, push it into an isa where I could ( hopefully ) get a better rate of return.  Or a combination of both.  its confusing

Martico

If Paypal stands at 26% APR, I'd blitz that this month instead of further building up the emergency fund. Then you could return to a combo from next month, with a focus on overpaying the card that is closest to having its 0% term ending. While you're getting offers still, they're not guaranteed and each comes at a price. Keep topping up what's already turning into a fairly decent buffer by all means, but those CC totals are still fairly high and worth working on. 

EssexHebridean

Focusing for a moment on the 0% deals - how long are they for? For example, could you decide to leave the payments to those at an amount just above the minimum, while then saving excess income into regular saver accounts with the idea that you would then be maximising your savings, but still meaning you have a pot of money there ready to clear a card at a time when they all mature - usually after a year? As a rule, regular savers don't allow you to take the money out mid term so they are brilliant for helping those who might otherwise have an impulsive approach to their money to be more disciplined. 

Cards not cleared when the 0% ends will need to be moved on to new deals but it sounds as though you're already pretty on the ball about that aspect. Well done on that! 

How long is the interest free period on the AO account and is that set to be clear by the time that 0% ends?

Definitely get shot of the wretched Paypal credit too - then close the account once it is cleared and work on the basis that in future if you haven't saved for the thing you're buying, then you wait to purchase it until you have! 

ryandotdee

EssexHebridean said:

Focusing for a moment on the 0% deals - how long are they for? For example, could you decide to leave the payments to those at an amount just above the minimum, while then saving excess income into regular saver accounts with the idea that you would then be maximising your savings, but still meaning you have a pot of money there ready to clear a card at a time when they all mature - usually after a year? As a rule, regular savers don't allow you to take the money out mid term so they are brilliant for helping those who might otherwise have an impulsive approach to their money to be more disciplined. 

Cards not cleared when the 0% ends will need to be moved on to new deals but it sounds as though you're already pretty on the ball about that aspect. Well done on that! 

How long is the interest free period on the AO account and is that set to be clear by the time that 0% ends?

Definitely get shot of the wretched Paypal credit too - then close the account once it is cleared and work on the basis that in future if you haven't saved for the thing you're buying, then you wait to purchase it until you have! 

Both Virgin cards have about 9 months left on them, the Natwest one has 29 months.  The AO stuff is a new TV, I technically had the money to buy it, but, thought if I got it on 12 months BNPL and pay it in 11 months, then I will have pocketed the interest gained over the 11 months. But, I appreciate that if I spaff the money in the meantime, and dont have the funds to pay it then I will get hit with the interest charges. And As I write this, I also realize that I should not be counting the money in my emergency fund as an emergency fund as it is the tv money :S

I guess what it boils down to is that for the first time in my life I am able to put money away each month, and there is a strong desire to spend the next couple of years paying loads off the cards to get them clear, but, its equally nice to see my bank / savings balance grow for once.

Agreed on the Paypal front, might just divert all spare cash to that for a month or two to get rid, then perhaps just do both, pay half my spare cash off cards, and half into savings.

RAS

If the emergency fund is actually the TV money, then you need to sort out some savings urgently, particularly as a home owner. I'd also suggest that you need at least two savings funds, possibly more.

Your current "TV" fund become a budgeting fund. If you must buy something BNPL, make sure the full value goes into it immediately. Otherwise, this takes the monthly insurance costs, so you can pay annually, car costs so you have the money to cover annual costs, ditto Christmas and birthdays. 

Then you need the emergency fund, that covers if you lose your job etc

I'd suggest stashing one month's spare money as an emergency fund before you start tackling the PayPal account. Aim quickly to get a month's mortgage in there over the next few months, then double.

ryandotdee

RAS said:

If the emergency fund is actually the TV money, then you need to sort out some savings urgently, particularly as a home owner. I'd also suggest that you need at least two savings funds, possibly more.

Your current "TV" fund become a budgeting fund. If you must buy something BNPL, make sure the full value goes into it immediately. Otherwise, this takes the monthly insurance costs, so you can pay annually, car costs so you have the money to cover annual costs, ditto Christmas and birthdays. 

Then you need the emergency fund, that covers if you lose your job etc

I'd suggest stashing one month's spare money as an emergency fund before you start tackling the PayPal account. Aim quickly to get a month's mortgage in there over the next few months, then double.

What is the benefit of having multiple savings accounts?  I currently have a stocks and shares ISA ( which i emptied 3k from before xmas to pay off debt ) and a 4% instant access savings account with Santander.  

Definitely agree with the point around wanting to build savings, I did have 3-4k before xmas but decided to combine this with my share save payout to clear my biggest CC`s, which were costing me £370 per month combined.  I guess thats the question here, go all out on saving, or all out on paying down debt.

kimwp

ryandotdee said:

RAS said:

If the emergency fund is actually the TV money, then you need to sort out some savings urgently, particularly as a home owner. I'd also suggest that you need at least two savings funds, possibly more.

Your current "TV" fund become a budgeting fund. If you must buy something BNPL, make sure the full value goes into it immediately. Otherwise, this takes the monthly insurance costs, so you can pay annually, car costs so you have the money to cover annual costs, ditto Christmas and birthdays. 

Then you need the emergency fund, that covers if you lose your job etc

I'd suggest stashing one month's spare money as an emergency fund before you start tackling the PayPal account. Aim quickly to get a month's mortgage in there over the next few months, then double.

What is the benefit of having multiple savings accounts?  I currently have a stocks and shares ISA ( which i emptied 3k from before xmas to pay off debt ) and a 4% instant access savings account with Santander.  

Definitely agree with the point around wanting to build savings, I did have 3-4k before xmas but decided to combine this with my share save payout to clear my biggest CC`s, which were costing me £370 per month combined.  I guess thats the question here, go all out on saving, or all out on paying down debt.

Some people like to have different accounts (or use an account like Monzo which (I think) allows you to create pots) for specific things - it can make it easier to keep control by ring-fencing the money. For example, If you had put the tv money into a "TV" account, then you wouldn't have thought it was just emergency savings. I've not had a need to have different accounts to manage this, but I've always had lists of what the money was for eg £total is made of £disaster fund* + £emergency +£saving for new car +£ holiday. And actually my savings are across a number of savings accounts. There's lots of ways to do it, meticulous and methodical is the way to start, then you can figure out what works for you.

*I personally separate out disaster money which is for a year of essentials in case of job loss and emergency money, which is for unexpected white good breakdown / emergency vet bills etc.

enthusiasticsaver

A stocks and shares ISA should not be used as an emergency fund as in an emergency it needs to be available immediately and on average it takes at least a week to get it out of an investment ISA. 

I would definitely pay off the PayPal card as it is charging 26% interest.  

As to whether you should save or clear debt personally I would advise you get rid of the debt as eventually the 0% deal will expire and then you will need to pay a BT fee to transfer to a new deal.  Saving in a savings account though so it is ready to pay off the 0% card when the deal expires is an option.  As you say the £1k in the bank savings is earmarked for the TV which will move to an expensive BNPL rate if you do not clear it in time. Personally I would feel if you are not disciplined with money prioritising paying off the cards would be better for you in the long run.  

13thlegion

There are many ways to slice your cake, so I fully understand the mixed feelings. Almost frustratingly there is no absolute right answer either.

Looking at you SOA some things stand out that affect my other thoughts, if I were in your position (big if here as you are the one in your position and ultimately this is your decision).

Is the SOA what you are doing, or is a plan for what you want to be doing each month? The reason for this question are the figures for entertainment, holiday, and emergency fund are £500, £200, and £500 per month respectively. 

One option, going Dave Ramsay baby steps way, would guide you to have £1000 set aside for emergencies (step 1) then pay off debt (step 2), then save a larger emergency fund (step 3). As you have £1000 float in you bank, and £1500 in the ISA, you are already ahead of step 1 and could use £1500 now to pay off paypal and a decent chunk of the TV. As you would not need to save the £500 each month you would then have £624.61 to make addition payments each month. The TV would be paid off in the second month and Virgin 2 would be down to well under £1000 by the end of the 0%. If you  spend less than £500 on entertainment each month this would happen even faster.

Another option is to take advantage of some fixed interest, pay minimums and save everything that isn't an emergency fund or sinking fund into it until you absolutely have to make a payment (on tv and clear big chunk on). Assuming £599.61 saved this way (also assuming sticking with £1000 in emergency fund) each month and 5% interest you'd get c£130 in interest before the virgin cards' 0% expire.

So many other options as well.

I think really, first set out what is a priority for you and then do that. If you want to out of debt faster, concentrate on that. If you want to save more, concentrate on that. If you give yourself a timeline you could plan to reassess what the priority is every 3 or 6 months and the freedom to change things around if you feel your priorities change.

Also massive well done on everything you've done so far.