Active discussions

Meet the Other Phone. Flexible and made to last.

Meet the Other Phone.
Flexible and made to last.

Buy now

Please or to access all these features

Talk
AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

Financial advice

44 replies

Poptart4 · 26/07/2020 12:50

I have roughly £5600 of debt and £7000 in savings. Debt is half credit card, half credit union.

Should I .....
(A) Fully pay off debt and be left with much less savings. This makes me nervous as we had a really bad yr financially last yr (hence debt) and dont want to be left without a good amount of savings to fall back on if needed.

(B) Continue to prioritize building up savings and pay the minimum owed on debts each month.

(C) Stop saving all together and pay large amounts off debt each month.

Like i said last year was terrible financially. There was alot of unforeseen expenses which ate up any savings we had and left us at one point without a penny. Literally. I'm very nervous about ending up like that again so am leaning towards building up as much savings as I can. But I also hate being in debt. It plays on my mind.

What would you do?

OP posts:
Miniminiminimini · 26/07/2020 12:51

Pay the debt you’re losing money for the privilege. Keep the credit card for emergencies until you build your savings back.

Wfhwith3yearold · 26/07/2020 12:51

If you stopped saving how quickly would the debt be paid off?

HowLongCanICallitBabyWeight · 26/07/2020 12:53

Are you paying interest on the debt and at what rate compared to interest on savings?

Movinghouseatlast · 26/07/2020 12:57

Pay the debt then try to build up savings again.
You are throwing money away on interest.

It is not what I would do, it is what I did do- it was my partners business related debt but it got paid off and we had 50p left in a tin.

I had a decent job but he was unemployed. We lived on £50 a week and didn't go out or buy anything for 3 years. It was hard but I'm glad we did it now.

Timesdone · 26/07/2020 12:59

If you're paying interest on the credit card pay it off as it is likely to be at a higher rate than the credit union. If you can find an interest free credit card, (check on money saving expert site) apply and keep it handy for unexpected expenditure but only as a last resort and don't use it for cash, £ is rarely, if ever, interest free. Continue to pay off the credit union monthly.

Original poster
Poptart4 · 26/07/2020 12:59

@Wfhwith3yearold about 6 months to pay off.

@HowLongCanICallitBabyWeight the credit card is 16.8% interest. I dont know the interest rate for credit union but it's a CU so would be minimal.

Savings account is 0.01% which is crap really.

OP posts:
Lalaloveyou2020 · 26/07/2020 13:02

Get a loan from CU to pay off credit card? Less interest and easier repayments. You can always chuckk your savings at the CU loan down the line.

LovingLola · 26/07/2020 13:03

I dont know the interest rate for credit union but it's a CU so would be minimal.

It’s a bit daft not to know the interest rate of any debt that you have. And don’t assume credit union rates are minimal either.
Call them tomorrow to find out.
Are your savings in the credit union ?

goodnessidontknow · 26/07/2020 13:04

Pay off the credit card now with some of your savings then stop saving and clear off the credit union debt over the next 3-4 months. That way you get rid of the debt quickly while still keeping a buffer for peace of mind.

Timesdone · 26/07/2020 13:04

Another thought ... If you pay off the credit card you can use a portion of the monthly payment you would have made, to increase your CU payment, if that's permitted. So you will clear the CU debt quicker as well. You should soon have cleared all the debt & will be as happy as Larry.

bridgetreilly · 26/07/2020 13:04

C. But move as much of the debt as possible to 0% interest cards, and pay as much as you possibly can every month.

Wfhwith3yearold · 26/07/2020 13:04

If that's the credit card rate, I would clear this asap using savings. It will be costing a fair bit in interest every month.

I'd then split the leftover money each month between savings and paying credit union.

The credit union is normally a better rate but I would check this. If it's a high rate as well I would use all money each month to clear.

LadyMacbethWasMisunderstood · 26/07/2020 13:05

A makes most sense purely on the maths. But I would probably do C myself (in fact I am). Definitely not B.

RedskyAtnight · 26/07/2020 13:06

Unless the debt is 0% interest, pay it off. If you've built up £7000 worth of savings in a year it sounds like you are in a good financial position, so you'll likely get more credit again if you really need it for an emergency.

Merryoldgoat · 26/07/2020 13:06

I don’t understand - why do you need to stop saving if your savings are greater than your debt?

Surely you pay the debt off entirely, have £1400 left in savings and just keep adding to it as you’re debt-free at this point.

bridgetreilly · 26/07/2020 13:08

Whatever you do, don't pick B. You can end up paying several times the original debt if you only make minimum payments.

flirtygirl · 26/07/2020 13:15

I would

  1. Ring the credit union to check the interest rate.
  1. Pay off the 16.8% card immediately with my savings or if able to get a 0% card and set the payment up so that the debt is paid at the end of the term.
  1. Depending on what the credit union rate is either pay it off as quickly as possible if a low rate or transfer to interest free credit card if eligible.
  1. After no 2, if I choose the option of using part of the savings to pay off the 16.8% debt, I would keep the rest of the savings.
flirtygirl · 26/07/2020 13:20

Basically today check out your eligibility for 0% cards on money saving expert and apply if eligible.

Tomorrow ring credit union.

If not eligible for any 0% cards, in the next few days, ring up the 16.8% debt for a settlement amount in full and final payment. They may for instance accept £2000 for a £2600 debt. Pay it off either way in the next week or so.

It is very silly to pay the minimum each month on a higher rate debt, when you could either apply for 0% free credit card or when you have savings sat there earning 0.2%. You are wasting hundreds of pounds per year on interest.

SchrodingersImmigrant · 26/07/2020 13:21

Unless your savings are making profit in higher interest than the debt (which 99.9%) they won't, I would pay off the debt and kept saving.

And I agree with PP, it IS daft not to know interest on your loan. Be careful about this.

Ikeepbuyinganimals · 26/07/2020 13:21

I would absolutely clear the whole of the debt balance and leave minimal savings. You are throwing money away on interest for no reason. That's another £20-40/month you could be saving instead!! Keep an emergency credit card on hand in case it all goes tits up again. This is what I did and an extra bonus is you'll feel so much better for not having the debt nagging away at you 😀

Teacher12345 · 26/07/2020 13:25

Pay off the credit card and then stop saving whilst using what you normally save, to pay of the union debt.
Could be debt free by xmas with some savings still intact and then start saving again.

Oysterbabe · 26/07/2020 13:25

Clear the debt, that's a lot of interest. Get a new 0% credit card to spend on and keep saving then pay the card off before the 0% ends.

Atadaddicted · 26/07/2020 13:29

Op
You don’t know how much interest you’re paying?

I’m going to hazard a guess that finances aren’t your forte.

Pay the debt off immediately.

You’ll still have a decent enough pot upon which to focus building up again.

DancingInDespair · 26/07/2020 13:50

Pay it of in full. You will then have the interest on it cleared, too, and can start fresh.
Put whatever amount you were paying towards the debt into your savings account and it will soon build back up.

bridgetreilly · 26/07/2020 14:02

I know people are saying pay it off in full, and financially, that is the best thing to do PROVIDING that you know there won't be any emergencies in the next six months. Which you don't. But £7k is a reasonable buffer (Dave Ramsey says start clearing debt once you have $1k saved, and also to aim for 3-6 months worth of salary in savings after you have paid debt). So you should be clearing debt as fast as possible, but it's okay to decide that you don't want to just pay it all in full and leave yourself vulnerable to emergencies instead.