To pay or not to pay

[Akasia]

Hi all, hope it's the right place to post.

Currently on mat leave for just under 1 year. The pay is very poor in a few months I will be on statutory and then nothing from month 9 onwards.

I currently have 2 credit cards one with just under 3k on (paying interest) and one with just under 7k (paying interest as well).

I have some savings, around 15k. Problem is I cannot decide if I should pay the cards or keep the money in instant access savings. Pay the 3k card and keep the rest in instant access and balance transfer the other on 0%.

I am not sure if I plan on returning to work. If the new year is anything similar to what this year has been so far I will not.

Looking for some thoughts on my situation if you would so kindly take the time to read my post. Thank you.

Savings accounts pay close to zero interest and the Bank of England is considering negative interest rates for savers.
I’d pay both the credit cards off entirely. Spend the £5k left on living costs, then if you need to, go back into as little debt as possible on a lower interest, preferably 0% interest card. Paying off the credit cards will boost your credit score so you won’t be stuck with only high interest ones to choose from.

Plus after month 9, you can apply for universal credit.

Do you have a partner? If so, do they earn?

Thank you for the replies.

My credit score is excellent I am not at all worried about that. I know I can balance transfer right now the whole amount on a 0%.
The reason I am paying interest on the cards at the moment is that the 0% ran out last month.
I am not interested in claiming benefits as long as I am fit to work and it is a choice not to (if the current situation does not change).

I have a partner and we are fine financially as a family. This is my debt and my savings and I refuse letting my partner getting involved in it. From his point of view I should keep my savings for 'rainy days' and not touch it.

I would pay off both. It seems bonkers to have debts and savings. Plus it’s such a good feeling to have those debts gone.

I would definitely clear my debt. I’d hate to be in that much debt on maternity leave, paying interest too.

Will you stop using credit if you pay off the cards?
If so then definitely pay them off. Be debt free.

If you become debt free and then go back into debt again, you are not changing behaviour. You will pile up the debt again and this time you won't have the money to pay it off.

These people loved being debt free...
m.youtube.com/watch?v=o_8ebac0ZWc

I would definitely pay off the credit cards. I now only use credit cards for convenience and pay off the full balance each month.

Sorry but I don’t entirely agree with your partner.
The first thing you do to be financially secure is get debt free.
Then you build up savings for a rainy day.
Even after you pay off your credit cards, you still have £5k left over in savings for a rainy day that you can add to.
It is madness to just be carrying around old debt. Even if you transfer to another 0% card, there is always a balance transfer fee of 1-3% which is only increasing your debt by £70-£210 for nothing but the privilege of having an extra bill to pay every month.

On the UC comment, I didn’t mean to imply you wanted to go on benefits, just that they are there as a safety net so you do not need to factor in using up more savings just to live once maternity pay runs out.

If you have no intention of claiming benefits then I would clear your debt. The interest on savings is poor and generally decreasing, but it's unlikely the rates on your CC's are.
It's good to have some liquidity, but you will still have £5k left, which you would have to assess whether it's enough to cover a few months not earning/broken boiler etc. You always have the option of an interest free purchase credit card later if you really need it.

Pay off the debt then you can start with a clean slate on joint family savings/spending. I'm sure you weren't planning on self funding from your statutory mat leave and were jointly funding your mat leave, but it removes the temptation to spend your savings funding mat leave or child costs, when really they are not savings, they are just your debt repackaged

It's a no brainer to me. Pay off the cards and be debt free.

If you really have to you can run it up again when you need to, but I'd be trying my hardest to stay debt free from now on.

Transfer both to a card offering 0% for 2 years or another fixed term. Calculate the monthly repayment necessary to have both paid off in that time inc any transfer fees. Set up standing order. Keep savings.

Pay off the credit cards, then set up a DD for the money you're paying off them into your savings, then you're debt free but still building up your rainy day fund.

To me, you haven't got £15000 of savings, you've got £5000 which is a decent buffer amount.

Thank you all so much for taking the time to reply

I have to say I am surprised how many of you think it is a good idea to pay off the cards. I was not expecting this.
I have to say, the debt is very old and it will feel good once they're gone.

Still, I like the idea of having access to some cash if needed so might not pay off the full amount, transfer onto 0% and increase monthly payment to pay off quicker.

I do not intend to use another card (like I said old debt) so rather have access to some money.

Thanks again for your kind replies.

Madness. Warped logic. But totally up to you of course.

This is a rainy day @Akasia Pay off your credit card debts ASAP. Good luck.

Usually the best advice is to pay off debt, starting with the highest interest first.

But right now the world is so mad that personally I'm hanging on to my cash and have been since the start of this pandemic. Who knows what might happen that might make access to some ready cash essential

Just don't end up funding your mat leave from it. You're very clear that it is your debt not your partners, so remember that it is not really savings, just debt repackaged, and mat leave is best seen as a joint not individual decision to stay at home. It's always sad to see women funding it themselves rather than expecting their partner to fund it

I'd still just pay it all off. You can then take out a joint loan if you do need cash, as unless you have a massive shopping or gambling habit, presumably you would be needing the cash for purchases that benefit the family, not just you?

Oh I meant - rather than expecting their partner to also fund it. Of course, your mat leave is your shared contribution too

There's absolutely no logic to not paying both cards off in full, in the situation you describe. If you used your savings to clear the cards you'd still have £5k left for emergencies (that you could presumably continue to add to each month, with the money you plan on using for card repayments?) and as an absolute, absolute emergency you'd have 2x clear credit cards with decent limits if an expense came up that you really weren't expecting.

I would pay off all debt on both high interest credit cards and have one for emergencies. 5K in savings is good ''rainy'' day fund.

Simple calculation would suggest you are paying minimum £150 a month in interest just to service your debts. That is £1,800 thrown out every year.