Is this a mad idea ?

Highlanddream

I have loan that has £5000 left on it, paying £300 a month, minimum interest now. I am getting £5000 extra in by the end of the month, am I mad to think about putting the 5000 in premium bonds and taking out 300 a month to pay for it? I am just wondering whether it may be an idea, with a possibility of winning some small amounts of dosh? 

I have 22000 left in total debt btw. I am paying it down at a rate of £750 a month. 

sourcrates

You may as well put it all on red, or bang it in a high stakes slot machine and hope you win, you won`t but you`ll feel like a king until your money gets blown.

I had premium bonds for over 40 years and never won a penny, in essence its a terrible idea.

Sarahspangles

The ‘interest rate’ on Premium Bonds isn’t very good. Also you don’t get entered into the draw in the first month, you need a full calendar month holding them. 

Normally you pay off your highest interest loan first, subject to there being no penalties. It might not be the loan that is closest in value to the sum you have to work with. This then frees up some income going forward to throw at another debt. 

Highlanddream

It would free up 300 to pay extra off other debts. I am shocked that @sourcrates hasn't won anything in 40 years that's enough to put me off. I have had them previously and won regularly. Luck of the draw I suppose. I need talking out of the idea so I think that has worked

fatbelly

The sensible thing to do with 5k is to pay it to the debt that carries the highest interest.

If all your debt is at 0% then I still wouldn't think of Premium Bonds, given that the average interest is 3.5%

https://www.moneysavingexpert.com/savings/premium-bonds-calculator/

And you can get 5.2% from a savings account

Highlanddream

It is all 0% @fatbelly. I hadn't thought about a savings account. I know logically I should just pay the £5000 off but it does seem I may have options. I am paying down the debt at a reasonable amount and this would up my level to £1050 a month. 

Sarahspangles

Highlanddream said:

It would free up 300 to pay extra off other debts. I am shocked that @sourcrates hasn't won anything in 40 years that's enough to put me off. I have had them previously and won regularly. Luck of the draw I suppose. I need talking out of the idea so I think that has worked

We hold enough that we’re bound to win something but over the last six months my return has been 2.5% and OH 0.5%. I wouldn’t want to be dependent on getting even ‘average’ odds.

rach_k

It's not the same as gambling because there is no risk to your capital.  Even if you never won anything, you would still have your £5k, which you can take out whenever you want (allow a few days as it's not always instant and sometimes you are asked if you want to wait until after the next draw).

I have some and have won enough that it's been a decent option for me - I've won more than I'd have earned in interest (in a bog standard savings account, not an ISA or anything like that) over the same time, but nothing spectacular.  There's always the very slim possibility of winning big, which is nice as long as you aren't seriously expecting it.

I would take a look at how likely you are to win.  MSE has an article with some calculations and a link to a calculator for you to put in your own figures.  It is, of course, only based on average luck though, so you could still win nothing if you put in the max allowed.

I don't think it's completely mad, but there are probably better options if it isn't just 'spare' money.    

Bored

I would just pay off the £5000 and then you can set up a standing order to redirect the spare £300 to premium bonds or a savings account if you wish.

Sarahspangles

Highlanddream said:

It is all 0% @fatbelly. I hadn't thought about a savings account. I know logically I should just pay the £5000 off but it does seem I may have options. I am paying down the debt at a reasonable amount and this would up my level to £1050 a month. 

If your debt is at 0% then a savings account might make sense. We have a couple of limited access accounts where you can withdraw only once or twice. Rather than the kind where you have to leave the money in for a full year. They’re ’rainy day’ funds. In return the interest is a bit higher. You could use something like that and when a 0% period ends you could pay off the balance from savings and still get some interest.

Floss

Highlanddream said:

It would free up 300 to pay extra off other debts. I am shocked that @sourcrates hasn't won anything in 40 years that's enough to put me off. I have had them previously and won regularly. Luck of the draw I suppose. I need talking out of the idea so I think that has worked

I've had some for 60 years and won £50.