What would you do…..

RedPear9641

I’ll keep it short and sweet!

We’ve been given 7k unexpectedly as inheritance money - which we are incredibly grateful for.

We have 7k worth of (interest free) debt on a credit card.

I want to clear the debt!

My husband (who relative kindly left this money to us) is worried we will clear the debt and get ourselves into new debt…

Once our debt is paid off, I want us to pay off next years holidays in advance, plump up our accounts with extra savings and generally become better at being financially savvy!

Exodi

RedPear9641

We’ve been given 7k unexpectedly as inheritance money - which we are incredibly grateful for.

We have 7k worth of (interest free) debt on a credit card.

I want to clear the debt!

If the debt is interest free then there's not a lot of sense paying it off right away, as opposed to, for example, opening a trading 212 cash ISA paying 4.55% and earning £318.50 of 'free' money per year. It only really makes sense paying off debt if the the effective interest rate is higher than what you could get from savings (likely when the 0% offer ends).

RedPear9641

My husband (who relative kindly left this money to us) is worried we will clear the debt and get ourselves into new debt…

I agree with your husband - paying off the debt only addresses the symptom rather than the cause. If you are spending £500 more than you are bringing in every month (for example), you are destined to go back to where you started if you don't also fix the reasons you got into debt.

RedPear9641

Once our debt is paid off, I want us to pay off next years holidays in advance, plump up our accounts with extra savings and generally become better at being financially savvy!

If you have a £7k inheritance and £7k in debt, where is the money you intend to use to pay for a holiday? Hopefully not with new debt? Is there a risk you'll over-indulge (aka 'treat yourselves') due to the inheritance, effectively trying to spend it twice if you also plan to clear your debt?

Personally I'd use this opportunity to take a deep dive into your finances, fully understand what you having going out and going in, set budgets for things and put yourselves on a stable footing, including budgeting for savings and transferring them out of your account on payday alongside your bills.

born_again

If you have no savings, then put a chunk in savings as a emergency fund.

Do you think you would pay the £7K off normally before the end of the 0%? If not then pay a chunk of the debt off & make sure it is cleared by the end of the 0% offer.

foxgloves

I would get rid of the debt & use this as a starting point for a new approach in which you save money each month into different pots (sinking funds) to cover the sort of very predictable expenses which are often bought on credit cards because the planning hasn't been done to ensure funds are at the ready. I didn't discover budgeting until I was in my 40s & after 2 or 3 initial attempts, settled on 10 Savings Pots categories which are paid into regularly (plus the all-important Emergency Fund, of course) & so when perfectly predictable spending needs arise - a new fridge, pair of boots, family presents, etc, occur, we don't need to use credit.

Your husband's worries about you simply acquiring further debt will only come to fruition if you let them, as cards & money don't leap out of our purses on their own! If you have money put by for things & exercise self-discipline, there's no reason paying off this credit card debt couldn't be a fresh new start of living entirely within your means.

Your example of saving up to pay for your holiday is a good one. In the Spendy Years, we'd use a credit card for that, but now we book the holiday & I work out how much money needs to be saved each month to meet the balance when it becomes due plus cattery fees for the 2 rascals. Yes, we both still have 1 credit card each, but they are only used for planned expenditure to build up loyalty points for shopping vouchers. Both are paid off in full each month & we have not incurred any interest since we made the long overdue decision to become....& stay...debt-free.

So that's what I'd do. While credit has become completely normalised, plenty of people live without it & are more resilient financially for doing so.

Good luck with your decision.

F x

RAS

You are trying to do a lot with a small windfall.

Do you have any other debt besides the 0% deal? Do you have any savings, if so how much?

I'd agree that your priority is to sort out your finances so that the 0% card is paid off before the deal ends, without using the inheritance.

Meantime you need a decent emergency fund so that if the cooker or car fail, you have the money. You also need money to cover emergencies like ill-health or job loss. How much depends on your employment package. If you'll get 90% salary for 6 months, less than if self-employed.

Start with 2 month's basic living costs. Then, if you have a mortgage, say 3 month's payments, and enough for a at least one major repair. If you rent, enough to pay a deposit and month's rent in advance plus moving costs. Top-up when you get the old deposit back. That money goes into an interest bearing account.

Being savvy is saving up for next year's holiday in advance, but first you need a safety net to cover the boring stuff in life. Do a proper SOA and discuss together how to get to the stage when you have security, spend less than you earn and can save for big ticket items. Then look at pensions.

And please take out decent holiday insurance the day you book it.

gwynlas

If you are already servicing the debt out of your regular income then I agree with your husband that you should possibly see this gift for what it is and save it.

You could use it as an incentive to save more building it up to say £10,000 and then decide what to do with it

victor2

I would use it on the holiday first - you can remember the person who left it to you while enjoying the holiday. Then put the rest towards clearing the debt. And make sure you don't incur further debt, if at all possible!

MEM62

My husband (who relative kindly left this money to us) is worried we will clear the debt and get ourselves into new debt…

For that to happen you would have choose to rack up more debt. Having been in debt and now being debt-free why would you do that? Clear the debt and just make better choices. It's not complicated.

monious

https://forums.moneysavingexpert.com/discussion/6679555/what-would-you-do

Stick the money into a tax free ISA

Continue to keep moving the debt to 0% cards and pay it off the way you would have without the monies you have been left.

The discipline of paying off a debt the hard way will teach you not to get into debt again, paying it off quickly will make it inevitable that you will be back in the same debt in a few years. Try to increase the amount you pay every month to the max you can afford on your current income.