Pension Payout used for paying off debt

threlfaw

I'm at an age now where I'm thinking about possible retirement and looking at my pension options. One of those is that I can get a 25% pay-out when I turn 55. As I have a significant about of debt, 30K+ that is manageable and reducing, paying £1000+ per month.

I wondered if it would make sense to pay off that debt using the pay-out and then use the money I would normally pay each month towards the debt to instead go into my pension. So, for example, I might end up paying over £150,000 into my pension over the next 10 years.

Please let me know your thoughts.

Brie

It's generally thought unwise to use pension money to pay off debts. What if you actually need that money when you come to retire?

Have all the debts defaulted? If not I suggest stop paying and force the issue by getting them to default so there is no more interest being paid. Council tax may be an exception, or others where real baillifs might get involved - real ones, not pretend puffed up individuals from collection agencies. Anyways, with defaulted debts and no interest accruing and assuming you have the £1k a month to pay £30k would be gone in under 3 years. And then you'd have another 12 years to pay into your pension as well.

Would that work for you?

ManyWays

have you looked at 0% transfers to reduce the interest being added?

threlfaw

I always have 0% transfers on the go, despite the debt being completely manageable it always stays around the 20-30k mark and rarely decreases as I used the CC for loads of things. I don't want to default because that causes issues in a lot of other places with Mortgages, etc. I'm not having issues paying the debt just wondered if I could clear it by using the pay-out and for once actually be debt free and have monies available to spend rather than using a card.

ManyWays

Can you afford the current minimum payments and not spend anything on the cards?

threlfaw

https://forums.moneysavingexpert.com/discussion/comment/81891382#Comment_81891382

The debt is 2 loans and two cards with a debt of approx 22k on the cards. I pay £500/mth religiously which is a lot over the minimum payment each month but then I'm left with a few £100 for life which tends to run out.
So in answer to your question, yes I could but the debt goes no where and the 0% runs out.

Brie

sounds like there's a problem with your budget perhaps? If you posted a statement of accounts (SOA see link below) we could have a look and maybe spot something that would help clear the debt quicker.

also - how long until you are 55?

and (sorry - lots of questions….) are you using the cards you have 0% BTs on? if so you're likely paying way over the odds for interest on your purchases as they will start from the date of purchase rather than 55 days (or whatever) later. Is getting a 3rd card possible? Use that for purchases and clear it each month in full. That way you can work on clearing down the BT ones without accruing interest.

SpireCaptain

https://forums.moneysavingexpert.com/discussion/comment/81891448#Comment_81891448

They might not be accruing any interest if they're using the cards with promotional balances only on them as I am, if they pay say £200 on a card with £20k at 0% and just go and spend that £200 on food etc, they won't be accruing any interest as it's just making the payment and using it as purchases next month.

That's how I'm keeping my head above water without accruing interest albeit like the OP his balance won't be going down. Not ideal but they must have a decent credit file to be getting 0% deals for cycling the balances in perpetuity.

Martico

I'm no pension expert, but once you trigger the MPAA, the amount you can invest into pensions drops from £60k pa to £10k pa gross. So first thing to check would be the actual viability of the plan. And only then check if it would actually be a sound idea. I suspect it probably wouldn't be

Keep_pedalling

What sort of pension would this 25% be coming from?

Brie

https://forums.moneysavingexpert.com/discussion/comment/81891578#Comment_81891578

not all cards work that way. it will depend on the card T&Cs. I've only come across one card where you can have a 0% BT and make purchases and not be charged interest. Most cards you'll be charged at least a couple of days interest or perhaps more if they don't apply payments to any purchases until the statement is produced which means there may be up to 28 days of interest accrued. Very easy to get caught out with charges at some point.