Reduce pension to pay debt, top pension back up later?

LW7 · 20 November 2018 at 3:53PM

Hello members.

Has anyone ever reduced their pension contribution and used the extra cash to clear a debt?

I'm toying with the idea as my wage is all taken on living costs etc so clearing a smallish debt £1500 just isn't working as % rates are often what I can afford to pay off the debt.

I pay c £300 into my pension per month, and I get the option of changing this at any time from min 2% up to 25% I think.

Is it wise to reduce my pension to 2% for 6 months whilst I use the extra cash to clear the debt?

I'm c40 years away from retiring, but don't want to start using this as a way "out" and doing it again and again, once I start.

I see no way of clearing this debt without this.

I understand I will take a hit on mine and my employers contributions c£5k over the 6 months, but to me it's a short term fix.

I could look to make a one off payment into the pension further down the line when I receive my annual bonus (2019 bonus is already spent!, so it wouldn't be until March 2020 until I could pay this back)

Or am I looking at this the wrong way, and should try find the cash elsewhere?

lisyloo · 20 November 2018 at 4:01PM

What % are you paying on the debt?
Could you reschdeule it onto a lower rate e.g. 0% credit card?
What's your credit rating like?

You might want to post up an SOA (statement of affairs) on the dealing with debt board if you think there's any scope to reduce.
I'd be interest to know what you pay for your mobile phone (curious as I pay £7.50 per month and often find people caliming to be skint paying £45 or £60 per month).
You will hopefully find people there largely helpful and not judgmental.

I understand I will take a hit on mine and my employers contributions c£5k

So are you saying you'll lose your employers contribution as well?

My advice would be to look at your budget to see if you have any scope to reduce with the help of the folks over at the dealing with debt board.

If you've spent your bonus already then I'd guess you aren't budgetting for foreseable eventualities such as car breakdown or household repairs?

I'd want to look at all the options first.

MallyGirl · 20 November 2018 at 4:06PM

I would try all other avenues before dropping pension contributions if it meant also losing out on employer contributions.

Also take a look at the power of compound interest - paying in early and stopping later (if necessary) is better than stopping now and trying to catch up later. I know pensions don't earn interest and growth of investments is not consistent but it is an important principle nonetheless.

LW7 · 20 November 2018 at 5:17PM

lisyloo wrote: »

What % are you paying on the debt?
Could you reschdeule it onto a lower rate e.g. 0% credit card?
What's your credit rating like?

You might want to post up an SOA (statement of affairs) on the dealing with debt board if you think there's any scope to reduce.
I'd be interest to know what you pay for your mobile phone (curious as I pay £7.50 per month and often find people caliming to be skint paying £45 or £60 per month).
You will hopefully find people there largely helpful and not judgmental.

So are you saying you'll lose your employers contribution as well?

My advice would be to look at your budget to see if you have any scope to reduce with the help of the folks over at the dealing with debt board.

If you've spent your bonus already then I'd guess you aren't budgetting for foreseable eventualities such as car breakdown or household repairs?

I'd want to look at all the options first.

Thanks for the response.

Interest is 19% on the debt, I think from memory interest is c £23 per month. I usually pay £30 or £40 per month.

There is nothing stopping me transferring it onto a 0% credit card, althought I'm not a fan of credit cards per se, this is a store credit account debt.

According to the last credit expert run a few days ago, I'm 924/999.

You're correct in your assumption of my bonus pot, although I do have a company car, but I am at risk of not being able to addord home repairs, should the need arise.

Money is tight this year, so I'm already at my limit (mobile phone is £18 pm, sky on basic package etc) so trying to get another £150 pm from my remaining wage isn't possible at the moment.

Thanks for the SOA advice, I've not heard/seen that before, so I will have a look at that now!

MallyGirl wrote: »

I would try all other avenues before dropping pension contributions if it meant also losing out on employer contributions.

Also take a look at the power of compound interest - paying in early and stopping later (if necessary) is better than stopping now and trying to catch up later. I know pensions don't earn interest and growth of investments is not consistent but it is an important principle nonetheless.

Thank you for your advice MG.

NoMore · 20 November 2018 at 7:01PM

There is nothing stopping me transferring it onto a 0% credit card, althought I'm not a fan of credit cards per se, this is a store credit account debt.

This would be the easiest way for you to pay the debt off as long as your disciplined. Much better than dropping pension contributions

BoGoF · 20 November 2018 at 7:27PM

If it's a store card it may not be possible to do a balance transfer, you may need a 0% money transfer card.

LW7 · 23 December 2018 at 11:43PM

Thank you for all your input on this.

Wanted to return to just update, I have been able to sell back a week's holiday via my employer (which is something they offer every Jan), this means in two paydays the extra money back in my wage will clear this debt without the need to touch anything else.

This forum is great for just giving your head a wobble sometimes!

Merry Christmas all.

LHW99 · 24 December 2018 at 10:07AM

Well done Mossmanian - hope 2019 goes well for you.

planteria · 24 December 2018 at 1:44PM

yes, glad this has worked out. sharing your position and getting feedback can be very helpful.

Dazed_and_confused · 24 December 2018 at 2:03PM

Nice to get an update and it also sounds like a much better outcome.

When you're retired you'll probably see it as one of the best holidays you (n)ever had

Reduce pension to pay debt, top pension back up later?

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