To have savings when i have debt?

[SummerSix]

Just that really...

I don't have much savings as i only started saving a couple of months ago after paying a couple 'bigger' debts off and already had to dip into it but I wish to continue saving a little each month.

Atm I have around 400 in savings so not much at all but its a little buffer should I need it.

I have one debt really except my car with only a few months left to pay on it, as I consolidated everything else onto my credit card with low APR (which is less than half of the interest rate if i hadn't have consolidated).

So I have around 2.5k in debt.

AIBU to keep savings or should I transfer savings into paying off credit card and if needed use the credit card as in an emergency as my buffer?

400 in savings is not really that much unless you have debt of a similar size.

If the debt is likely to spiral into something nasty if you cannot do a payment due to an unexpected expense, it may be better to use those savings to make the payment rather than ruining your credit history. Take it as a personally managed PIP to put it in a way.

It goes against what Martin Lewis says but I work things the same way as you. When I had no money after my divorce, I started a savings pot from scratch with £2 coins. It felt good to have even a tiny buffer and I have built it up over the years and now have some security. I am also still paying a debt from my divorce which undoubtedly has cost me more than it needed to but there was a balance in terms of how I felt about having something for a rainy day rather than resorting to the credit card. Do what feels right to you.

it really depends whether you are at max limit on your credit card, if you owe 2500 but your card limit is 3000 there is your 500 buffer
if you £100 a month to pay off either the card or add to savings
if you save the first 5 months to get £500 savings then use the next 7 to remove debt at the end of the year your credit card debt is now £1800 and you have £500 in savings
if you put all the money towards debt at the end of the year your card debt is now £1300 you still have no savings however even if there was an emergency and you had to add £500 to the credit card your balance would still only be £1800 just the same as if you had had a savings account but if there was no emergency you debt is a lot lower so the £100 each month is achieving more
you should always pay the debt with highest rate of interest first and the minimum payment on others
Martin Lewis explains this really well
The only reason to build up savings rather than have a buffer on your credit card is if you are already at limit so you could not get more credit but it is best to leave the notional £500 savings on your card if you needed it
Having savings may make you feel better but financially it is not the wisest decision

it is silly to have interest on your card adding up at 18%+ per year while getting 0.5% on a savings account

If there are potential costs that couldn't just be added to the credit card, then you need savings to cover those. If not then all spare money can go into the credit card.

I agree with TeacupDrama.

I have both. I pay a chunk of Cc each month, and also put £500 pm into my savings account. The savings will pay for our holiday abroad this year. When back of holiday, end of Aug, Sept and Oct wages I'll pay £500 per month to clear CC and put around £300 per month into savings. After Christmas I'll go back to £500 per month in savings then pay of my overdraft at £300 per month which will take till May 2020.
I would ordinarily prioritise the debts, however am jamming that holiday in, as next year the debts will be gone and I live in a rickety house, so know my savings next year will have to go to pay for a new roof, and I want the Cc's at a zero balance by then.

I also think that some people on this thread are saying savings when they actually mean budgeting for things that they know they'll have to pay in the future, like planned holidays, road tax etc.

That's not savings, that's a sinking fund, so that when stuff comes up, as it always does, you can pay for it without using your credit card. I think it's good to aim for a sinking fund of at least half a month's pay, before you go all in on paying off debt. Otherwise, you'll never actually pay off the debt, because you'll keep needing to add to it.

I would keep the savings. It's not a huge sum, as you say yourself it's a buffer and it's always good to have something put by just in case. It's not like it would clear your debts - you'd still owe money but would have nothing in reserve for the weeks you don't have as much work as you'd hoped. Hang onto it and continue to pay down what you owe.

As long as you have a plan to pay the debt of having a little buffer is a good thing.

As someone who works freelance and often gets paid when the spirit moves clients, I say you need an emergency fund. £400 is a small amount and not, I think, representative of what people like Martin Lewis mean when they advise paying off debt first.

I think you’re being sensible.

We have around 6K debt on 0% interest credit card and 3.5K savings. Each month we pay standing orders of £400 into savings and £200 on cc. Any £ left in checking account at the end of the month also goes into savings. It means we're chipping away at the debt while still able to treat ourselves to holidays, new laptop etc from savings. It works for us. The debt isn't accumulating and we still get to enjoy our lives. We'll both get small wage increases in Aug which I'd like to put towards the cc to pay off the debt a bit quicker. Once the debt is cleared we'll probably take on a small bank loan to re-do our bathroom which we feel will be manageable since we're handling cc repayments fine at the moment.

My cc is 7%. Limit is 7k and I'm only at 2.5k.

Only have 400 as like I said, I'm part time and only been able to start saving this year. In March actually but had to dip into it as I lost out on work due too illnesses then no work available.

I'd continue what you are doing, you'll never know when you'll need cash for something.

You credit card interest is quite high so I would use the savings to pay it off. Could you not transfer it to one that has a lower interest rate though. I'm not paying any on my credit card after I transferred the money from another.

The reason why debts become problem is because people don’t save too. Keep doing this.

Agree with many others that it is good to some savings put by for emergencies.

One warning, don’t let on to people around you that you have it in case someone has a “sudden cash crisis” and needs that 400 quid Likely you won’t get it back.

If you have an irregular income you need an easily accessible buffer for cash flow purposes. Otherwise you end up getting into debt, as you d realised.

From a purely mathematical point of view it’s “incorrect” having savings and debt. But if you can’t rely on your income every month it is much, MUCH better to have some cash available.

Keep going!

@heroine when on a 0% deal you will get more interest by having savings in the bank financially so long as you have paid off credit card by the time the 0% interest period ends most deals are 12-18months then it would be wise to use savings to clear any remaining balance if tyou can't swap to another 0% deal

@summersix however building up even £400 savings when you are paying 7% interest and have a 4,500 buffer makes no sense mathematically
monthly interest is about £14.5 so if you pay £100 a month you decrease debt by £85.5

if you pay that £400 ( +100 each month) to your card you are now only paying interest on 2100, which is £12.18 so your debt is decreasing by £87.82 ok so 2.32 is not a lot of difference per month but compared to the interest on £ 400 which would be about 16p, but it is 14 times the interest earnings
if you never need the £400 you will pay off your credit card at least 6-7 months sooner and if 6 months down the line you need the £400 you will still have had 6 months of lower interest but now having paid off £400 + (6x 87.82) your credit debt was down to 1578 it is now back to 1973
however keeping your 400 in saving means that after 6 months you have paid off (6x85.5) your credit card balance is 1987 and you have 48p interest on savings as you needed the 400 so you keeping rather than using your savings actually means you are worse off in the end albeit not by much (£14+)
the figures aren't quite accurate as each month you are paying interest on less money
as you have a big gap between debt and credit limit your savings are effectively held on your card a bit like an offset mortgage

@nosquirrels but the OP does have a large cash buffer of 4500 on her credit card she doesn't need 4500 on her card and 400 in a piggy bank

the OP does have a large cash buffer of 4500 on her credit card

It's not "cash" if it's on your credit card.

Honestly, everything you say is absolutely true, teacup, and mathematically it makes a lot of sense. But if you have got into debt because of irregular income, it is much, much better to not have to use credit to plug the gap. It is a slippery slope.

So it's better practically for people in that situation to think I need X amount per month to fulfil all my needs and debt repayments, and if I earn £X minus £200 I can use my 'buffer' savings, and STILL pay off my debt that month. Then I can add back to my 'buffer' in the following bigger pay month.

It keeps it simpler, which is what you need when you're dragging yourself out of a hole.

Ideally, I agree, you would not be paying extra interest on the debt. But the pure maths is not always the right approach.

The point I'm trying to make - clumsily - is that when you are in a hole you should not be thinking of the head-room on your credit limit as "cash". For the majority of people, that will muddy the waters.

@nosquirrels I can see that it is a temptation but the temptation doesn't go away just because you have 400 in savings, when you know you could still use your card
I think if you have an irregular income you need savings to balance out the good months with the bad, if you sell icecream something needs to tide you over winter , however my real point is that until you have paid off your debt especially debt with high rates of interest it is still robbing john(savings) instead of peter(credit card) to pay paul( bills) in an emergency

I'm not thinking of the credit limit as cash but rather as emergency savings if your car needs £400 repairs whether you physically withdraw cash from a bank or add it to credit card it is still savings gone

I think for some people who have problems using credit cards and getting into debt it is best that they stop using them, but there is a financial cost to that decision, however if you can avoid using your credit card as cash and not just fritter away limit, they are an extremely useful tool in managing short term uneveness
if you need £200 extra this month but will have 300 surplus next month internal borrowing on a credit card is cheaper than a bank loan but it is not cheaper than a flexible overdraft, I believe first direct have a flexible 250 overdraft
The problem most people have on variable earnings is getting used to living on the sum they get in a good month so a poor month throws them instead of getting used to living on an average or just below average month and immediately banking the surplus

I think if you average £1800 a month any month when you get more than 1800 you should put the excess in your savings immediately before paying bills going shopping or anything and just live of the 1800 so by the time a 1400 month arrives you have the extra 400 ready and waiting

I think given the changing work scenario, you may need "savings" to pay things like mortgage, which you can't pay with your CC, as it would count as a cash advance under most CC, which instantly attracts interest (possibly at higher rate). Decide if you need 1 or 2 mortgage payments, and when your savings gets to this, put all spare to the CC.

But all the boiler/car expenses should go onto CC - keeping these what if funds is, as someone said, paying as if the "storm" has already happened. If nothing happens, savings don't earn much interest, but your debt has accumulated interest - thus costing you more. If "storm" does happen, the "savings" are in the CC ready to use.