Clear Cards with High Interest Savings?

emphatik

Id be grateful if someone could please help with this!

We have a total of £6900 on 6 credit cards, 3 on short term 0% and the other 3 on fixed low interest rates, highest about 4.5% (all as a result of following this site!) paying back approx £250 per month.

In addition to this we've saved approx. £5k which is in ICICI at 6.4%.

I know normally speaking you should clear your debts before saving, but does this apply when the rates on your debts are less than the rates on your savings?

Would we be better to clear as much of the higher interest rate cards as poss, then pile the rest of the £200 a month into the remaining 0% card? Or simply keep doing what we're doing until our savings equal our debts (using the difference in interest rates to get there) then pay them all off at once??

Sorry about being longwinded, just wanted to make sure I ask all angles!!

Thanks.

Tirian

That depends rather a lot on whether the interest you are earning is taxed (e.g. in a savings account) or untaxed (e.g. ISA).

If it's being taxed, then you'll not be getting much more than 4.5% really, and I would say it would be better to just pay off anything that's accruing 4.5% interest straight away. (or possibly any 0%s that are going to switch to an unpleasant rate before you are finished paying them off).

Without knowing how long your 0% rates last for, and what they are going to switch to once they run out, it's kind of impossible to say really. At £250/month it will take you at least 2 1/4 years to pay it all off so you're likely to either have to BT some of it at some point, to keep it at 0% - incurring a 2-3% charge. If you have to do that twice for anything that will pretty much wipe out even tax-free interest earned.

WIthout knowing any more, I would say keep back a £1000 in the savings for an emergency fund. Use the rest to pay off some of the debts. This will also reduce the amount of time you have to spend juggling the debts around and finding new deals to transfer to - and you can use that time to fill in a few surveys/do a few hours overtime/do some other freelance work and earn a bit of extra cash to pay off the rest earlier ..