Pay Off Debts With Savings Article Discussion Area

kilgore1080 · 23 December 2009 at 12:51PM

I'm going to disagree with the advice about this, in 2008 I'd built up a few thousand and following Martin's advice on using Emergency money to pay off debts I put that £3k towards paying off my loan. Felt great that I'd paid a big chuck of it off, patted myself on the back etc.

The problem came that a month later I was made redundant (hadn't been in the job long so didn't get any extra payout) and I was left with a load of monthly out goings that I now had no fall-back money to service. And as my loan still required paying that meant that I had no option other than to go overdrawn to see me through until I got a new job. Which I then incurred interest charges on.

Whereas if I'd still had that 3k emergency money I'd not have had to use my overdraft at all and I'd have had the security of knowing how long I could keep my head above water for until I got another job and I'd have avoided paying any interest charges on my overdraft.

For a while I was very close to not being able to afford my monthly outgoings thanks to paying off a chunk of my loan. There's no way I'd leave myself without some emergency funds now, at least enough to be able to pay my minimum outgoings for a couple of months.

Paulgonnabedebtfree · 23 January 2011 at 2:13AM

Sorry to resurrect an old thread but Martin's advice about paying off debts with savings holds good generally.
However, there is a proviso in his article about ensuring that the money is re-borrowable in case of emergency. Credit cards are specifically mentioned as being reasonably reliable for this - though it may not be possible to get another personal loan.
In view of the way some credit card companies have been slashing credit limits and/or cancelling accounts - even for people who appear creditworthy, I wonder if the time has come for Martin to revamp this old article to highlight this side of things a lot more. When it was originally written, card companies were still increasing limits with relative ease - or at least not decreasing them. Things have changed and I am asking Martin to acknowledge this in his news item that started this thread.
I feel that many people may need to keep some extra money in reserve only pay down debts until that reserve level has been reached. This is certainly the case with myself as I've no idea when another card company might suddenly pull the plug on an account - even though I have no defaults and no late payments. This is particularly so with my being self-employed and needing to keep an oldish van mobile and never being certain when a big repair may be needed or some tools may need replacing.

Ridmeofdebt · 18 April 2011 at 8:09AM

This morning I woke up and decided that this is the week to do it.
I have totalled up all my debts
Credit card 1 - £1462.18
Credit card 2 - 301.97
Loan settlement figure £16,171.25
Car loan settlement figure £2571.88
Total debt £20,507.28

Total savings £19,035.64

If I pay off the debt with my savings then I will be £621.23 better off as well as the original £1000 that I also put away so will be £1620.00 better off per month to start my real savings. In a year I will have real savings of £19,000. I am ready to take the plunge and clear the debts but am really nervous about it.

Other than this I have a mortgage on my property and 2 mortgages on buy to let properties. The buy to let properties are fully covered by the rental income and I have an emergency fund of £3700 to cover any emergencies on the buy to let properties which I have not included in my total saving above.
There is one other credit card debt which was run up by an ex- boyfriend £5600 which he pays me £100 per month to cover.

Am I doing the right thing or am I going to leave myself open to worry with no savings. By the 1st of May I will have £1600 to put into savings so why am I worrying or is it normal to think that I am doing the wrong thing even though I know it will be better for me in the long run.

I gave up meat for lent and for some reason see off loading my debt as a good way to celebrate Easter.

Ridmeofdebt · 18 April 2011 at 9:08AM

Ridmeofdebt wrote: »

This morning I woke up and decided that this is the week to do it.
I have totalled up all my debts
Credit card 1 - £1462.18
Credit card 2 - 301.97
Loan settlement figure £16,171.25
Car loan settlement figure £2571.88
Total debt £20,507.28

Total savings £19,035.64

If I pay off the debt with my savings then I will be £621.23 better off as well as the original £1000 that I also put away so will be £1620.00 better off per month to start my real savings. In a year I will have real savings of £19,000. I am ready to take the plunge and clear the debts but am really nervous about it.

Other than this I have a mortgage on my property and 2 mortgages on buy to let properties. The buy to let properties are fully covered by the rental income and I have an emergency fund of £3700 to cover any emergencies on the buy to let properties which I have not included in my total saving above.
There is one other credit card debt which was run up by an ex- boyfriend £5600 which he pays me £100 per month to cover.

Am I doing the right thing or am I going to leave myself open to worry with no savings. By the 1st of May I will have £1600 to put into savings so why am I worrying or is it normal to think that I am doing the wrong thing even though I know it will be better for me in the long run.

I gave up meat for lent and for some reason see off loading my debt as a good way to celebrate Easter.

Well I have started the ball rolling.
I have just cleared my loan of £16,171.25 with my savings

Total debt left is now £4336.03
Total savings is now £2864.39

I am now going to raid another of my accounts to pay off the car loan. Watch this space.

Ridmeofdebt · 18 April 2011 at 11:48AM

Ridmeofdebt wrote: »

Well I have started the ball rolling.
I have just cleared my loan of £16,171.25 with my savings

Total debt left is now £4336.03
Total savings is now £2864.39

I am now going to raid another of my accounts to pay off the car loan. Watch this space.

I have just been to the bank and cleared the Car loan. I am now on a roll.
Total debt left is now £1764.15
Total savings is now £292.51

Still feel weird that I have done this but I know I am doing the right thing.:eek:

andypandy2009 · 9 May 2011 at 5:24PM

Hi,

We are a family of 4 and have a campervan with an outstanding loan of £15,000. I am about to receive approx £15,000 in inheritance from the sale of my deceased grandmothers house.

I planned to buy a small low emissions, eco car with the money from my gran and a few other bits for the house (a new settee!), spending around £10,000. I would then save the other £5000.

My mum has said that Martin Lewis would always recommend paying off the large debt first!

If I did pay the debt off - saving us £270 a month - I would then possibly lease the small car for around £100 per month, apparently there are some good deals around. I wouldn't get my settee but at least we wouldn't have the big loan, and the campervan could be used only for holidays instead of using it as our day-to-day car, as we currently do. We're hoping to have this van for the rest of our life!

We have a mortgage but no other debts.

I just hate the thought of using the 15k on something so boring as paying off a loan and I'm sure my gran would of hated it to! :A

What should we do?????[/FONT][/FONT]

yourmum · 21 May 2011 at 9:11PM

Ridmeofdebt wrote: »

I have just been to the bank and cleared the Car loan. I am now on a roll.
Total debt left is now £1764.15
Total savings is now £292.51

Still feel weird that I have done this but I know I am doing the right thing.:eek:

Congratulations. Inspiring.

black_taxi_2 · 31 August 2011 at 3:52PM

was going to build a 7k EF

downgraded it to 2k

now o/p mortgage which i see as debt

nickyotron · 3 September 2011 at 9:23PM

I think what needs to be added is this... Martin is totally correct, pay off debt with savings. You want to earn interest, not pay it! But, these days you need to make sure you have a 'minimum-payments-pot-of-gold' for the rainy day that you may well lose your monthly income.

Meaning, have enough savings to cover a few months minimum payments, at least. Sounds obvious right? Other wise, if you bulk all your savings into paying off a large chunk of debt, which is great and amazing.. should you become unemployed any time after and, still need to pay off debts, then you could find yourself very short as JSA may not cover them. Hence the idea here is, make sure you have your 'minimum-payments-pot-of-gold' to cover an amount of months minimum's that you feel comfortable with.

Also, do make sure you have got yourself 'income protection' if you are currently employed. Then your pot of gold need only keep you going until your policy kicks in, should it not do so immediately.

bhoy1976 · 10 November 2011 at 11:24PM

Hi,

There's a possibility I may be offered a one of sum from a third party. In terms of figures this is a rough outlay:

Debt: £12,0000 approx.
Offer: £6,000 approx.

I fully take on board the debt v savings argument but I have been giving my situation a lot of thought since this possibility came along.

If all of my creditors acecpted a fair split of the £6K as full and final settlement this would be my first choice. I pay a reduced amount through a payment plan at £120 per month (£1440 per annum).

To see this go completely would be a weight off my shoulders but there is no guarantee they will accept. If they didn't I would much rather see the money invested in me gaining a degree or saved or invested.

There is of course no guarantee I will ever see this money but if I did, does anyone have any advice?

Thanks in advance.

bhoy1976

Pay Off Debts With Savings Article Discussion Area

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