Using savings for credit card debt

fulhamnonny

Hi everyone,

I currently have approx £6000 of credit card debt in which I don’t pay interest on it as I card tart when the interest free period is almost up. I always pay more than just the minimum payment, so the debt is coming down - just slowly.

I have some savings, which would be enough to clear the debt and still have a tiny amount left in savings. Is it worth me clearing it all and then slowly building the savings pot up again?

I’m self employed and early into a new career, so the build up of the pot would be slow and i’m trying to put a small amount (£50) each month into an old work pension from the days I was PAYE.

I look forward to hearing your comments.

TIA

ManyWays

You do not have to do all or nothing here.
When is the next 0% term due to end and how large is that balance likely to be then? Because one option would be to clear all or part of that at that point.

If you are newly self employed, it may be harder to refinance a 0% when the term ends.

kimwp

Im pro savings and anti debt and it's a big no from me because this uses all your savings and you aren't paying interest on the debt. If you keep your savings and get into a situation where you are not earning money, then you can default on the debts, but still afford food. If you use up your savings paying off the debt and stop earning, you won't have money for food.

Worried_fool

How disciplined are you?

The rational answer, so long as you can continue to get interest-free credit with minimal fees, is earmark your savings for paying the debt and put them into a high-interest savings account. By doing this you get to keep the interest, while knowing that if the interest-free deals are no longer offered to you then you have the money to clear the debt. Of course, this only works so long as you don't touch the savings: if you spend them on "a proper Christmas" and then cannot refinance, you end up paying enormous amounts in interest.

Having said that, many people find debt worrying. If getting rid of the debt would help you feel more relaxed or sleep better, then it makes sense to pay it off as soon as possible.

13thlegion

Ideally more information is needed to make that decision. Such as:

• What are the figures we are talking about? in savings, on the 0% card, and the card that will start to charge interest?
• You are self employed, do these savings represent your only safety net?
• Likewise do they represent what you have to pay any taxes?
• Do they also represent your sinking funds? Money that is 'saved' but isn't really savings as they are eararked for other things (Xmas, MOT, etc)
• Is the rate you are paying the cards off now the most you can afford each month?
• How did the debt accumulate? Is it something that won't happen again? Can you live without dippng into credit even with low savings available?

You mention that it would be slow to rebuild your savings so I imagine that you are not saving aggressively now and that there isn't much wiggle room in your budget.

Very generic advice for my last point. Using your savings that drastically to pay off debt in one fell swoop is a form of consolidation. Just instead of owing a creditor you owe yourself. And it leaves you open to the risk of needing more credit in the near to medium term if an emergency came up (and they will come up) with the end result is you have debt and no savings. If you can access a 0% balance offer that might be a good idea, and keep paying off the debt total over time, not increasing it, and also growing your savings at the same time.

fulhamnonny

https://forums.moneysavingexpert.com/discussion/comment/82169782#Comment_82169782

To answer your question, the debt is split across 3 different 0% credit cards but with not all equal amounts. The next switch is May 2027, followed by the other 2 in July 2027.

If I cleared all the credit card debt, it’d leave approx 30% left of what I have currently saved.

Money for tax from my work is kept in my business account.

I’ve never really had a sink fund.

The debt is old debt from a few years ago and im not spending on the cards currently, so it is decreasing- even with what I'm paying off.

I'm currently not saving anything at all.

RAS

What rates do the cards revert to if you can't get 0% deals.

Also if you use the credit card checker here (soft searches only), what's the best rate you'd get?

ArtyJ931

always bear in mind the fee to balance transfer. It’s not strictly 0% because every time you switch they whack on 3-4% fees usually.

fulhamnonny

https://forums.moneysavingexpert.com/discussion/comment/82169961#Comment_82169961

No idea. I’m guessing it’s at the usual rates of something like 22%.

I switch between credit cards I already have, so the 0% hasn’t been a problem yet.

fulhamnonny

https://forums.moneysavingexpert.com/discussion/comment/82170208#Comment_82170208

True, but the fee absorbed into the total owed.

kimwp

https://forums.moneysavingexpert.com/discussion/comment/82170208#Comment_82170208

It's possible to get zero fee, zero interest balance transfers.