Pay off credit card faster or up pension contributions?

[Scribblegirl]

Just a quick poll really...

I'm 27 and I was auto-enrolled onto my work pension scheme when I started a few months ago. The pension scheme is employer matched up to 4%, I'm currently paying in 1%.

I also have some old credit card debt which I need to get around to paying off within the next few years (don't want it still hanging over me when we start to think about maternity leaves etc.). There's £3.5k on a 0% card (0% offer runs for another 2 years) and £2k on a card that's currently charging a horrible rate of 17% APR (an old credit builder card from a few years back). Obviously my priority is to pay off the £2k card before I work on getting the 0% card down.

Due to a change in living arrangements and salary I now have £300 a month that I can afford to plough into the paying off of my credit card debt. However I'm also thinking that I should up my pension contributions, as I know the amounts you pay in now make all the difference later on.

Therefore my question is, should I:
a) Pay off £300 a month credit card debt and leave the pension at 1% until it's all done; or
b) Pay off £200 a month credit card debt and up my pension contributions to 4%, which will eat up the remaining £100?

I know this is just a message board and people may well not be qualified IFAs, just interested in what others would do!

I'd make paying the high interest-rate credit card a priority. Put £300 a month towards paying off that card, then once paid off I'd pay off the 0% card within it's interest free period to avoid further charges, and once debt was cleared I'd review my savings/pension situation.

Obviously don't add to your credit card balance!

Oh definitely - paying off the high interest before the 0% is a no brainer! What you're suggesting is my original plan, I just wondered if there was a logic to upping my pension contributions at this age seeing as they're employer matched.

The thing is, I've moved that £3.5k around on 0% deals a few times, so I'm confident I could move it to another 0% if it wasn't paid off in 2 years - obviously I'm aiming to pay most of it down, but I don't know if I'm shooting myself in the foot by focusing on the debt over my pension when most of it isn't incurring interest IYSWIM!

What are you already paying off them? This money is additional - or is it it?

Why haven't you moved the second credit card debt to a 0% interest card?

Do you have a mortgage?

Sorry for the questions, just trying to get a clearer picture of your finances before advising.

I would put the £2000 on a new 0% card if accepted.

In answer...

• I've been paying off the minimum as I was in a lower-paid job for a while, this money is now extra so I'm looking to reorganise properly and get rid of the debt.

• The limit on the 0% is 3.5k which is why the other 2k hasn't moved over

• Yes I have a mortgage.

Thanks for taking an interest - I'm happily in a situation where I can sort this all out now and I want to make sure I'm being sensible!

your priority is to switch the 17% card to 0% before doing anything! www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards#longestdeals

X-post CurtainsforRonnie (although I'm loving the username! )

(get a second card - thee limit on the first then isn't a problem)

As a general rule, if the interest on the savings/pension is lower than on the debt then pay off the debt first.

Get the credit cards both on 0% if you can.

A great way to check eligibility is to register with Clearscore, it's your credit report, free for life.

If you have a mortgage and the interest is higher than the credit cards then, provided overpayments are penalty free, I'd throw extra cash at that.

Find out the interest rate on the pension so you can work out the best option financially.

There will be one best option financially, it's not a matter of opinions on a board as such. You need to do the figures.

Also phone the credit card company with the 0% and see if they will increase your maximum amount and do a 0% balance transfer for the other card.

My ex just got a great offer with barclaycard, which was 0% on balance transfers for 23mths and zero transfer fees (they charge 3.5% initially & then credit it back so doesn't cost a penny).

You had to transfer the balance within 30 days to get the initial balance transfer fee funded, it only gets added onto the balance & then deducted again.

Halifax offer balance transfers with no fee.

Bear in mind that you will get tax relief on your pension contributions, so putting £100 into your pension scheme will only cost you £80 if you're a basic rate tax payer.

being very honest you should be doing both.... you are otherwise missing out on 3% free income paid into your pension.

Debts paid off first. Then pension.

I don't know what your tax bracket is but it might be viable to up the pension from 1 to 4 percent as it comes out of you gross salary. I'd work out how much less of take home pay that would be. If my calculations are about right, then if your gross salary is say 30k, your contribution would go up by 900 a year. If tax +ni is about 30% then your take home pay would be only 45 pounds less per month with 200 going towards your pension (with employer matching your 4% contribution). That's 150 more than now. at 17% of 2k debt, that's £340/year in interest so in the long run it would make sense to increase pension and pay the debt off slightly more slowly.

Ps I'm not an accountant and don't know your salary so not sure if my calculations are completely correct. It also depends on your salary.

How much would upping your pension to 4% cost?

Is this your first pension? If it is, then you have some catching up to do and there's those "free" employer contributions looking at you...

I"d probably do a bit of both, transfer the expensive credit card, pay off £150 extra per month and put £150 in your pension.

Get rid of your debts as soon as you possibly can. Make sacrifices in order to do it: don't just put your excess into the debt repayment, go without a few things as well, then pay more in to clear the debts.

Once you have cleared the debts, arrange a direct debit with your bank, to pay off your credit card balance in full every month. Or consider cancelling the cards and stick with just a debit card.

Then increase your pension contributions. At 27, you have plenty of time to build up a pension pot, as you're probably about 45 years away from retirement.

In terms of a good credit rating it's better to keep the credit cards once paid off.

Use them occassionally to pay for something you would already be buying, like food or petrol and then pay the balance immediately. This will ensure a good credit rating for when you need it.

They also look at how much credit you have available to you & the proportion utilised, the lower utilised the better, so if you can stick to not using them then keep them for this reason.