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Original poster

Should I pay off my credit card?

35 replies

2anddone · 30/03/2019 12:17

Hi :)
I currently have around £2300 on my Tesco credit card and am about to take out a loan (£13,000). I have around £2800 in savings, which is my 'security blanket' as I am a single parent and constantly scared I will be unable to work due to sickness (I am self employed) or xh will stop paying the mortgage.
I am a childminder and I am currently trying to expand my business as the children I currently have start school in September.
I will earn enough for my monthly outgoings and to pay off the minimum on the credit card and monthly repayments on the loan, but I am wondering do I pay off the whole credit card from savings and then 'save' the credit card payment each month to build it back up again?
Would love any advice please

OP posts:
Home77 · 30/03/2019 12:21

I've got a zero percent balance transfer off and it lasts for nearly two years, you could do that and make a standing order to pay some monthly perhaps if didn't want the one off hit. or do you mean making it part of the loan? I wan't sure.

LizzieSiddal · 30/03/2019 12:28

I wouldn’t pay off the whole credit card using your savings.
However I also wouldn’t take out a loan for £13,000 if I were in your situation.
You should pay off the credit card over say the next 12 months, so you’ll be keeping all your savings and then take out the loan next year.

Do you mind me asking what the loan is for?

Original poster
2anddone · 30/03/2019 12:28

Sorry I wasn't very clear.
I meant should I use my savings to pay off the credit card which would knock my savings down to less than £500 but I wouldn't have the credit card payment each month only the loan repayment?

OP posts:
LizzieSiddal · 30/03/2019 12:29

And just paying off the minimum amount each month, just means you’ll have that credit card debt for a very long time.

MummytoCSJH · 30/03/2019 12:31

I've been told time and time again that it is always best to pay off any credit card debt before putting money into savings, unless that debt has a very long 0% interest period and you expect your earnings to majorly increase before that period ends (meaning you could save and pay it off in full asap!).

LizzieSiddal · 30/03/2019 12:31

Sorry should have added, so you don’t want to paying just the minimum amount but you also shouldn’t use all your emergency fund for it. You should be paying it off say a few hundred a month.

meladeso · 30/03/2019 12:31

Is the loan absolutely essential?

Original poster
2anddone · 30/03/2019 12:31

The loan is for an outdoor playroom so that I can have more children to look after and therefore make more money...it would have its own bathroom. Childminding from my house with more than 2 children doesn't really work as no downstairs toilet and no inside space to play so I thought by putting a log cabin which can be used as a playroom during the week and a entertaining space at weekends I would be able to have more children without it encroaching on our living space.

OP posts:
Home77 · 30/03/2019 12:34

What about child ratios? (used to work in childcare)- depending on ages will you be able to have them alone of need staff? Is it possible to manage without the play room or do it without a loan?

Home77 · 30/03/2019 12:35

Or..could even do a zero balance transfer to higher level on card, they gave me 7K on last one which didn't ask for and don't use...but could save interest that way and pay back in instalments perhaps.

LizzieSiddal · 30/03/2019 12:35

It sounds like a great idea but I wouldn’t feel confident in your position to do it right now. You may have a playroom but you’ll have a £13,000 loan and a credit card that youre only paying the minimum off each month.

Is there a compromise? Could you try to pay off the CC in six months(using the money you’d be using for the 13,000 loan repayments), then get the loan.

3luckystars · 30/03/2019 12:37

Pay off the credit card and put it into the blender and never use one again.

Best wishes with your business.

RedSkyLastNight · 30/03/2019 12:38

I presume you've checked the numbers for the play room? How many additional children will you need for how long to essentially make the investment worthwhile?

YogaPants · 30/03/2019 12:39

When I have to make financial decisions like this, I tend to “double down” I.e. find a middle way. So in your case, I would pay 1/3 to 1/2 the credit card debt off with savings and then pay monthly both into the savings and the credit card but never removing your saving cushion completely.

MissWimpyDimple · 30/03/2019 12:40

It depends on the interest rate on your credit card.

You should always pay off your most expensive debt first.

Therefore I would pay off the credit card, then save the amount that would have gone on the repayments.

LizzieSiddal · 30/03/2019 12:41

Yoga that’s usually good advice, but the OP won’t beable to save if they are repaying a £13,000 loan.

PrayingandHoping · 30/03/2019 12:45

Use your savings and pay off your credit card in full.

Check out the Martin Lewis website as to why. He explains it better than I ever could but you are worse off doing it the way you currently are

NeedAUsernameGenerator · 30/03/2019 12:47

How much interest are you paying on the credit card? If it's something like 18% then you're paying £35 a month just to keep access to that credit and I imagine you're not earning more than about £3 a month in interest on the savings. If it's 0% then keep it but if you're paying interest I would pay it off and then start building up your savings with the money that you would have been paying to the credit card. Can you definitely afford the payments on this log cabin as well as building your savings or paying off the credit card?

Original poster
2anddone · 30/03/2019 12:48

Home77 ratios would be absolutely fine. I can fit comfortably 2 children in my house so as a result I have never had before or after school children. Now that the children I look after are about to become school children If I have the playroom I could comfortably fit 3 under 5's plus 3 5-8year olds plus any other after school children over the age of 8. At the moment I am limited to just 2 children at a time due to space in my house! I know it's such a risk but I feel if I don't take it now I never will!

OP posts:
Original poster
2anddone · 30/03/2019 12:52

I can afford the loan repayment, however if I kept the credit card I would only be able to pay off the minimum of that (last month was £55 repayment of which £33 was interest!!) the thing I am most scared about is losing my savings safety blanket though by the sounds of it I would be sensible to pay off the credit card and pay the difference into the savings account each month to build it back up again?

OP posts:
NoSquirrels · 30/03/2019 12:53

It will take you a long time to pay off that loan and the amount you’ll make by ‘extra’ children (usual ratios are only 3 under 5s) won’t make it add up, surely?

If I were you I would ditch the playroom idea for 12 months, get a 0% credit card transfer instead, pay the minimum but save up what you need to pay it off in full when the 0% ends, plus save up the loan repayments you would have made. At that point see if you can get another 0% card, or pay off the credit card entirely. You should then have a bigger savings cushion and will need a smaller loan if you decide to go ahead.

I honestly think taking g on a £13K loan for a childminding business as a single parent is really not a good idea. Sorry.

NoSquirrels · 30/03/2019 12:56

Have you looked at taking a 0% card? If your credit rating is good enough for a loan it should be OK for a balance transfer.

What rate is the loan and over how long?

Parents will likely stick with you for after school care anyway even if it’s small at your house - they’ll care more about consistency than space.

NoSquirrels · 30/03/2019 12:59

Why does XH pay the mortgage? Not just maintenance and a clean split break? What’s your financial divorce agreement? Sounds precarious to add value to the property via an outdoor room if he’s still getting a stake in property?

Sorry for the questions. But it all sounds really risky and like you may be better off entirely in a different t property?

Home77 · 30/03/2019 13:02

Ok, so on the childcare I would seriously consider if you can manage that number alone. In the nursery it was much easier with another member of staff as things tend to happen at the same time, and not easy alone. It sounds quite challenging and with the debt as well. If it was me i'd look at maybe taking less children and less expense on, maybe building up to such a change, especially if you have only had two so far.

Home77 · 30/03/2019 13:03

I mean, not only if the rations would let you but if you could cope with the different ages etc. In nursery I think it was 1:3 (or 4) for the toddler and 1:8 for preschool, but in practice we had two staff for a group...usually.

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