Would you pay off interest free debt or accrue interest in ISA?

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DH and I have around £12k debt on interest free credit cards.

We have come into some money that would clear this debt completely, but we are wondering with current interest rates so high, should we instead put the money into an ISA and clear the debt off before the interest free period expires? We now have disposable income to do so, and it only frees up £160 a month in min payments, when we could feasibly instead be accruing a nice chunk of interest in the meantime?

I am not sure in this case getting rid of the debt is the wisest choice?

Unless you need to clear the monthly payment for your budget I'd put it in a high interest account. You could always pull it out if you need to pay it off at a later date, but it makes no sense to pay of a non-interest baring debt unless you really have to.

Pay off the debt when you have to to avoid paying interest, until then get the best interest rate you can.

If you didn't pay it off, how much interest could you realistically earn on £12k before the interest free period ended? Could you earn £160/month in interest? If not, you'll be better paying the debt and putting the freed income towards savings.

You wouldn’t get much interest anyway for £12K, even with a top paying ISA (5.5%?). I would clear the debt just for the mental release.

When does your 0% expire? Would the ISA mature before you need to pay it off?

Makes no sense to pay the debt off whilst still on 0%, but how disciplined are you?

The interest would be £660, not much, but it’s free money 🤷🏻‍♀️

I would pay it off. Whilst that may not make financial sense, it changes your money mindset. If you want to be debt free, then pay off debt of any interest rate, as quickly as possible.

If you want to be in debt for the remainder of the 0% period, then set your own minimum monthly payment.
£160 a month seems low for a minimum payment to pay off the debt within a 0% period... how long have you got the 0% for?

When I had 0% finance on a car and made the decision to become debt free, I paid it off using money which I could have put in a savings account and got interest paid. It may not make sense mathematically but finance is not always about the maths, sometimes it is heart over head. How you feel matters. If you worry about having debt, pay it off.

What has prompted you to ask the question? If you were going purely on maths you would invest the money and pay off the debt over the 0% period. But you have posted a question... so think about why you did that. Maybe you see having the debt as a risk, regardless of it being 0% interest, because it is... the lender knows that many people on those deals end up paying interest.

It depends on the answer to why you wouldn't do it

It's a no brainer to borrow money at 0% and save it at say 5% so there must be factors you haven't mentioned

We have been gifted some money to help us save for a deposit faster which has coincided with an unexpected pay rise - very bloody lucky indeed. We have used most of the money to pay off all the debts with interest and topped up two LISAS to the max. With the money leftover, we are wondering if we should get the free money for now when we dont need to necessarily save the 160 a month in min payments.

Using disposable income we will be able to clear the debt before the rates expire.

Is there a reason you'd choose to pay it off before the 0% expires?

If you save in an instant access account you could do that same day if needs be in the future and pay the minimum payments using that account

I’d personally put the money in a high interest account and not pay off the debt, other than the minimum until the 0% is finished. In a year you could be up over £600.

BUT I am a pretty financially organised person with no debts. I wouldn’t be tempted to spend more on the card or spend the repayment money. And I’d have a note to make sure I paid off the card exactly at the right time so no interest accrued.

If you aren’t going to do those things then you’d probably be better off paying off the debt asap

Exactly. I've made thousands over the years by doing exactly that. Plus our mortgage was effectively interest free, and often in profit for most of the 2010s.

This. Exactly this.

It's not for everyone though - as you can see from the replies, I suspect the "right" answer depends entirely on what kind of person you are.

Sorry realise that sounds really smug! I have many vices, but poor money management isn’t one of them.

But the point is only you know if you’d be best off just paying off the debt and not having to worry about it anymore, or saving the money for the 0% term

Not at all! And you are so right.

I am just quite keen not to fuck this once in a lifetime financial opportunity up really!

Sounds like a no-brainer. Why pay off the debt early when you can get hundreds in risk-free interest by delaying? You can get at least 5.2% currently in an instant access ISA.

Santander Edge Saver gives you 7%, and you can put £4000. That’s £280 in a year.
Coop saver is 4.75% that’s another £380 if you put £8000.
Both instant access.
Out of the £8000 you can trickle into several regular savers: FD regular gives you 7% for up to £300/month, the interest is £136 after 12 months for example. Lloyds regular saver £400/month, at 6.25% etc.
you could make about £1000 in a year.