Debt v savings

[Debtorsavings]

I'm in debt but it is less than my savings. I could clear my debt in a few days as savings are in premium bonds. This year I have won £25 pm on average. My debt is held on 0% interest credit cards for 10 months and 15 months.

Do I clear the credit cards? My repayments are high but there is no interest. My savings are earning me money but it is luck.

Each month I will struggle with high payments, but I'm scraping by. I've just gone back to work after a year's maternity and I am due my holiday pay backdated as I cannot take it (I'm fine with this!).

I know this might seem ridiculous but I don't want to clear the debt as it is "free" - although will use my backdated holiday pay to clear one card. Financial savvy people, what should I do?

Pay your debt from your savings - but rather than in one lump sum, make the monthly payments, set up a direct debit from your savings account.

This allows you to keep the savings (up to a point) as a buffer in case you desperately need them, but takes the pressure off struggling to meet the high monthly repayments from your current account.

That's a great idea but I honestly don't know if I can do that but I guess I could release money each month from my savings to cover the cc payments. Thank you. Genuinely hadn't considered this.

How much do you have in premium bonds? If the £25/month equates to an APR of 5%, it’s worth keeping the savings. If it’s more like 0.005%, you’d be best to clear the debt.

Interest on Premium bonds is currently 0.095%

Clear the debt

Offset monthly interest paid
against income earned

If you keep the money in bonds you get some income but have to be careful with your money every month to get by.

If you cash in some or all of the bonds you lose some income but can be a bit freer with your spending day to day.

Pros and cons of each. If you want to be in savings mode then keep the bonds. If you want to be in spending mode then clear the debt.

£18.5k. I don't know how to work APR but I've earned £250 this year.

Debt is 0%

I would pay off the cards just before the 0% rate runs out, that way you have maximum gain.

You've already had 1.3% increase this year.

There is no spending mode I'll be at £0 each month getting by with just mtg, bills, food, childcare etc.

How much is your debt and how much is your savings? I would rather be debt free regardless of a zero % interest rate.

Just checking are you only paying the minimum on the credit cards?

You could release a few £k to reduce the debt and reduce the minimum payments then pay off the balance before interest free period rate runs out.

@WhentheDealGoesDown as in save the money in a separate account and then clear the balance the month due? I hadnt thought of that either. That is probably the easiest way actually. Again hadn't thought of that.

You earned 1.3% on your savings...

Pay off the one with 10 months left on it?

@RandomMess debt is around £6k. I've just upped the payments to pay it off in the time I have left at 0% on each card.

That's my plan when the backdated pay comes through @RandomMess which will free up about £200 pcm

No don't bother doing that just pay off the minimum use savings to pay it off when due!

I actually managed to find a zero transfer charge 0% interest credit card whoop whoop, that's another option to spread the 10 month one over longer but not if it will cost you anything anything.

I recently did some building work ans bought some purchased on 0% cc. Like pp said I have the cash in a separate savings account and then release some every month.

I feel more comfortable having that cash available if I need it. I have about £3k left and pay enough to hit zero just as the rate ends.

In someways I don't like it as it feels 'messy' to have the debt but I do feel it's prudent.

You need to keep the money where it pays highest, be it premium bonds or savings, give yourself enough to live on plus minimum payment, you have probably already paid a fee for this 0% interest so I would make use of it.

If it helps you feel more comfortable aim to pay off the 10 month with increased amount and pay the minimum on the 15 month one for now?

I did that but unfortunately the 0% balance transfer card limit wasn't enough to take the full balance. So I'm left with two. But I understand the point. Will continue minimum payment, save save save and then clear the month due (or find another card!). That will free me up a bit.

@Toomanycats99 this is exactly how mine got to this state. It is messy but with reduced smp income I didn't want to eat into savings when I could use a 0% cc and then the works are always more than expected

I'm sure in 12 months or so another deal will come up but if you're only getting 1.3% on your premium bonds and the transfer fee is that or more may as well just pay it off?

If you have £18k saved and £6 debt, why not pay off the debt. You still have 12k in savings!!!

And you can work on moving away from the mentality of " free money and towards avoiding debt etc. Having debt has a psychological cost too.

When the 200pm pay comes through then use that to rebuild savings. £12k is still a lot.

Good point. I'll check come August when the first expires. But I think having the cash feels more comfortable and I'll pay in one lump sum just before it is due. Or again transfer on a 0% card to give me some breathing space again.

Thanks for all the advice. It is always good to get other options I would never think of myself.