Should I use savings to pay debt?

[flatwhite201839]

I have £2.5k saved, I have been putting money away since youngest DC was born, and hoped to take DC on holiday next summer hols (single parent, minimal financial support from DC father).

I had a few emergencies this year which I had to put on my credit card as I didn’t have the cash upfront - car broke down twice and had expensive garage work, and had to get a new fridge.

At the moment I’m paying back £100-200 monthly on the credit card amount (just under 2k) so it should be paid off in around 18 months, I pay off extra when I do overtime at work, and I’ve started a separate pot for emergency costs. But I’m wondering if it’s more sensible to use the bulk of my savings to pay it off, and scrap the holiday idea, although realistically it will take a few years to save up again?

my interest rate is very low on the CC.

I would continue to pay the 100-200 per month, scrap the holiday and use the 2.5 K as an emergency cushion so that you dont run up debt again for " emergencies" aka things that happen !
I use YNAB and basically most emergencies are things that are fairly predictable and so a minimum of 1K should keepyou out of debt.
Personally I would prioritise a rainy day fund and then save for a holiday once thats in place.

I would pay off debts because you’ll be paying more interest in them than you’re earning on your savings.

Going forward, Money Box on Radio 4 was talking about a brilliant scheme for low earners to encourage saving. Basically, you can save up to £600 pa and the Givernment literally gives you 50% on top of it at the end of years 2 and 4. You can withdraw the money any time you like without affecting your bonuses. Sounded too good to be true, I googled it and it’s absolutely correct.
not widely publicised, would urge you to look into it. You’re eligible if you’re in receipt of UC or working tax credits. It’s called Help
To Save, details on Gov.UK website.

In the same situation but double in both savings and credit card. Have around 4.5k on a credit card and the same in savings. I don't know why but the thought of paying it off and having no savings seems scarier to me than having the credit card debt. Although technically I have zero anyway as my savings equal my debt.

How much are you paying off the debt each month and how much interest?
Pay off the debt and immediately pay the 2 sums added together into a savings a account.
It will build up quickly

No right answer but lots of great advice and go with what works best for you. Personally I would clear the debt, and you would still have £500 in your emergency fund so you’re not back to square one. Then the £100/£200 a month you were putting towards debt now goes to your emergency fund to rebuild your savings. If that feels too much pressure why note use some savings to pay half your debt so at least the interest will reduce and will be quicker to pay off x

Pay off the credit card debt. Save what you'd be paying off the credit card.

If you have another emergency, use your savings first then the credit card to cover any excess.

Holiday is on hold until you've got the credit card cleared and a buffer saved.

I would clear the debt and build the savings back up with the £100-£200 monthly payments.

You could split the difference if being without the cushion of at least £1000 in savings worries you.

Pay £1500 off the debt, make the rest of the payments until it's gone, then build your savings back up again after that.

Definitely prioritise paying off the debt.

How many DC have you got? Surely you dont need to spend £2.5k on a holiday

Get rid of the debt, then build your savings back up.

The sensible thing is to see which will give you the higher return. Is the interest earned on your saving higher than the interest paid on your debt? It's highly unlikely at the moment but you did say the credit card interest is very low. If you are paying more interest than you are earning you are paying out money you could be putting in your savings account. Why give the lender money you could keep?

What is the interest on your credit card? I wondered what people consider very low.

You need a rainy-day fund; this is critically important to avoid a drama turning into a full-blown crisis, so I’d say keep a decent amount of your savings aside for that (you can’t rely on your credit card limit remaining as-is in difficult times), pay the debt off as quickly as possible and then continue to save your reserve fund up until it gets to at least three months wages.

Don’t blow it on a holiday.

Why didn't you use the 2.5k savings for your emergencies this year?

I would tramsfer the £2000 onto a zero % credit card and get it paid off asap. I would consider taking £1000 from current savings pot and put towards credit card debt. Then, work out how much you can afford to pay each week. If its £100 a week, you'll be all paid off in a couple of months and still have £1000 in savings to put towards emergencies/holiday next year.

If you use 2k of the fund it leaves £500.

If you manage to save £1-200 a month that you're using to pay pay CC in 10 months you'll have half or that full amount again.

You could then do a cheaper holiday or what you'd planned.

You could always put what the interest is eating up in your emergencies fund or continue as you are as it sounds like you're managing that was well currently?

I’m going to go against the grain. I know the sensible thing money wise is to pay off the debt. The PPs are 100% right on this. The rule is to pay off debt before saving. However, I think there are exceptions to this rule.

We only get one life, and our DC are only children for a short time. You saved for a special holiday, and so I would go forward with that. I wouldn’t use the money to pay the debts from the car/fridge breaking down. You have a good plan in place to pay that off over the next two years. The years it would take you to save up again, that DC would be much older, perhaps even a grumpy teenager who won’t appreciate a fantastic rare holiday…ie say the fund is to go to Disney for example. It’s not something that can be put off, it’s now or never in a lot of ways.

There will always be set backs in life causing debt, but that doesn’t mean you always have to do the sensible thing for money. Sometimes you have to do the sensible thing for your DCs childhood & your parenting memories- sometimes a bit of enjoyment in living our life takes priority.

@Discovereads Then why not pay off the credit card debt then put the holiday on credit? It will mean fewer months paying interest as she's not ready to book it yet.

Terrible advice.
Op is a single parent.
Getting into debt is not a given and this is the sort of attitude that spirals into ever increasing debt.
Pay off the debt, build a cash cushion , then save for a holiday.

I thought she was ready to book for next year. But yes, if she’s planning the holiday for 2024 or later this is a good idea.

Getting into debt now and then is a given unless you are privileged enough to have sufficient coming in to cover your outgoings and lucky enough to not encounter any financial crises. There is nothing wrong with my advice at all because you have to balance living with making money to pay off creditors. Now, I’ve never been a single parent, but I have been a sole breadwinner so had 4 DC plus 1 DH to support off my wage alone. So I know it can be hard.

My attitude doesn’t create spirals into ever increasing debt. Debt isnt an evil to be avoided at all costs. Well managed it is absolutely part of life for the majority of people. What is a mortgage if not debt?

The OP has a good plan in place to pay off the car repairs and fridge PLUS start a savings pot for future emergencies. There’s no reason why she shouldn’t use the money she’s saved for her DC to have a rare holiday- she’s saved for years for this. It’s memories like that which last a lifetime and shouldn’t be dismissed so easily. As I said, DC grow up quick. It isn’t often a case of pay off all these surprise debts and then start over saving for more years with DC because it may be too late by then. Or something else will break or you lose your job….

So, yes, I’d go on the holiday. People go on holiday all the time with £1m debts and think they’re so superior because that debt is a mortgage. It’s all debt. It’s not the fact of debt that matters, it’s do you have a plan to pay it off and are you paying it off.

Yes I understand how mortgages work, however we were discussing unsecured debt which has occured as the result of annoying but fairly predictable expenses, fridges and cars break down.
In the Ops circumstances paying off the debt and creating a pot would get her out of the debt spiral THEN go on holiday.
Clearly we have different opinions
im financially secure and it never gets old!

@Discovereads Maybe 'ready' was the wrong word to use. If she's not booking it in the next few days, then she should pay off the credit card. Do people really book this far in advance for holidays? I suppose if the special offer is good enough... I don't think I could deal with an entire year's worth of anticipation!

You need to remember that to some people, the worst thing that you can possibly do is to be accountable for your own actions, to save up rather than to take on debt, and to understand that you are in charge of your own destiny.

Doing this completely destroys their narrative that we are being held down by “the man.”

To use a common phrase, it does my head in how some people on here can’t bear to see anyone from a “normal” background work their way into a comfortable life by dint of planning, deferred gratification and gaining valuable skills.

When I’ve had trips in that price range, yes, they’re usually booked at least a year in advance. Before Christmas at the latest. So right now it’s time to book for summer 2023…. I’m guessing it may be a holiday abroad on the basis of the price of £2.5k and the OP saying it’s a special holiday she has literally saved up for years to take her DC on. Even really nice holiday cottages in say Cornwall, Devon, (the U.K. hotspots), are booked between 18mos to 12mos in advance,..so OP would be a bit late if wanting to go in summer 2023.