Using savings for credit card debt

ArtyJ931

https://forums.moneysavingexpert.com/discussion/comment/82170270#Comment_82170270

that’s what I mean - it increases what you owe. I’ve done so many balance transfers over the years and wondering why my total never reduces - I think sometimes it can make you feel like you’re dealing with it and it’s free but those small charges add up if you have a significant debt and just wanted to flag that.

fulhamnonny

https://forums.moneysavingexpert.com/discussion/comment/82170372#Comment_82170372

thanks. I appreciate the sentiment, but my totals are coming down even with the fee as im paying more than the minimum.

13thlegion

https://forums.moneysavingexpert.com/discussion/comment/82169803#Comment_82169803

Thank you it's really helpful to know these bits. My fellow replies here are not wrong but I'm going to come at this from a slightly different angle.

The good stuff. You don't sound like you're in crisis yet about debt. The great stuff is you also sound like you are done with living a life that depends on credit and just don't want it hanging around. Cannot stress how awesome that is and should help you avoid getting into a real pickle.

The bits that gives me more cause for concern are you are unable to save at the moment, and even with no debt payments you've said that savings each month would be very small (but let's also recognise any is way better than none). You are paying only a very small amount into an existing pension. You don't have sinking funds for predictable but irregular expenses (irregular to mean not every month). And you are self employed so there is added risk and variability to your income (compared with a salaried job).

On this balance I will still recommend doing what you are doing. I am in a similar position with savings just above by debt total (not self employed though) and debt going down. I really am with you with the temptation to just have the debt gone in one go. Resisting this temptation though will have a couple of big benefits.

Firstly practical. Having a good savings buffer helps prevent any more debt coming up in an emergency and is good for piece of mind.

Second behavioural. By avoiding the quick fix and delaying the gratification of paying it all off you are exercising a mental muscle that will keep you out of debt forever. The debt will be paid off at the current trajectory so sit back and relax.

What would change my mind in your situation is any change in circumstances that would allow you to aggressively save again once the debts are paid off.

And unasked for advice but… this includes sinking funds. I'm a bit evangelical on this topic so apologies in advance. Budgeting ahead for things has been the single greatest change in my own behaviour that has enabled me to tackle my own situation which is why I share it. Every month I set aside portions of my income for things including car MOT and maintenance, Xmas and birthday presents, school expenses, white goods failing, holidays, vet bills, etc. Even if there are none due that month. It means when they do come around they just get paid for without affecting anything else.

fulhamnonny

https://forums.moneysavingexpert.com/discussion/comment/82170386#Comment_82170386

Thanks for your advice.

To be clear, I never lived off my credit cards. Without going into detail, if covid didn’t happen , I wouldn’t be in my current position. I would have however, still moved from being salaried to self employed.

My thinking behind paying it all off, was that I could then use the money I was paying off to put back into my savings- albeit at a slower pace.

When I was salaried, I felt I didn’t need a sink fund, as usually things like birthdays and Christmas could be absorbed. I don’t have kids, a car or a pet which helps in some way, but do have other costs. Obviously with my circumstances changing I recognise the need to have one.

MasterG83

I was in this situation, I kept £1000 emergency fund in my account and cleared everything, was a great feeling, never touched credit cards since, that was 2019

fulhamnonny

https://forums.moneysavingexpert.com/discussion/comment/82170651#Comment_82170651

Thanks for the insight. It’s helpful. It sounds like you would say do it to my suggestion.

horsewithnoname

maybe meet yourself halfway, pay off a chunk of the debt, but leave yourself with a decent amount of savings?