Plan to pay off CC debt

[CalypsoCuthbertson]

I’ve worked out that if I strip back to ‘essential’ bills (which includes reasonable grocery budget for a few treat foods now and again, and a couple of small entertainment type subscriptions, and a little money for bits like school uniform, birthday presents), I can free up £900 a month for paying off £12k credit card debt. Realise this is a very good position and very fortunate (I work bloomin’ hard for it too!)

This would mean I could power through the credit card debt in roughly a year (as will hopefully get an annual bonus to smash the rest next spring).

I don’t know why, but I feel twitchy about this plan… is it a silly idea to sink everything into debt temporarily? Have no one to sense-check it with. Also had a dream about seeing a plane crash last night which has set me on edge a bit - is my new or old approach the plane crash?! It means not saving for the next year. I currently have £1,200k in savings which will cover the next car MOT/service/emergencies, and more saved in work share schemes that I could access if I really needed to, and it means pausing saving for my DC’s life savings… but if I do this, next year I could top up all savings within 2-3 months instead.

The alternative is I use that £900 to do what I have been doing…. keep spreading it between things - chipping away at each credit card just above the minimum payments, and keep chipping away at building up savings. And worrying about switching credit cards to new 0% deals every time they expire. It’s taking me forever to pay debts off that way and I’m impatient to get rid of the debt.

If you take this year to pay off the debt you are then free with extra interest money too, to top up the other things ....no point imo to fill dc life savings if you're kinda bankrupting yourself 🤷‍♀️ start with the highest interest Cc and work through it you'll feel much better and secure. Good luck

Depends on your cards’ interest rates, your job security and attitude to risk. If you can still get zero interest CCs, you might consider taking advantage of currently low share prices and start an equity based ISA. On the other hand, share prices may fall further still, and if you are risk averse or fear losing your job, then paying off the CCs is the way to go.

How you built up the debt is relevant to this. If you built it up by constantly living slightly above your means are you going to be able to stick to the strict spending regime. I would go with a half way house and aim to pay off £500 per month.

Use the snowball method and try and clear the card with the highest APR first.

When I was in debt I wanted it cleared as soon as I could. I don’t think there’s anything wrong with this method and you have some savings should you need it.

Otherwise you could use £800 a month for debt and keep £100 a month for savings.

Also, be mindful of why you got into debt in the first place, so it doesn’t happen again. And once you clear a credit card, get rid of it.

Thanks everyone. I built up the debt by not coping with covid lockdowns/isolation very well - big anxiety and history of depression etc, which therapy has really helped with. I’ve been really consistent with not adding to the credit card debt for over a year now, so trusting myself more.

I have been paying £500ish a month towards debt up til now, though £120 of that was to pay off my student loan which is now finished!!!! (Hurrah) - so that frees up a little more to pay off the credit cards now, hence reassessing my budget.

I think my job is as secure as jobs are these days? I’ve worked at the same company for 20 years (in different jobs) and survived every restructure, and the company has big growth plans. I would get redundancy pay if that ever happened.

All of the credit cards are 0% at the moment and I can usually find another 0% deal, though I keep an eye on deals and have started to notice the balance transfer fees have been going up from 0-1% to more like 2-3% in the last year, so want to avoid those.

It’s 12 months not 12 years, honestly it will go by so quickly. Once you have paid the debt off you then can save £900 per month.

This is terrible advice. Do not do this. Pay off any debts and build up your emergency savings before you consider investing. You need to be able to tie up any money invested at least 5-10 years and now is an incredibly volatile market.

I’d sink a bit more into your savings say £200 and use £700 towards debt. Focusing on the one that the promo rate expires first.

I don’t want to invest any more right now - I already have a bit of a nest egg built up through generous work share schemes, so as well as paying off debt, I want to build up my emergency and cash savings more.

Yes true.

Actually I guess if I needed emergency cash for some reason, I could just drop back down to minimum CC payments for a month. I’m such a worrier!

Get rid of the debt asap
You have 1.2K for emergencies
Saving for your DC future is odd, you need to stabilise your own first.
Pay off debt -don't forget to pay extra in the form of unexpected cash or payrises in .
Sell stuff you don't use -out grown clothes etc and keep chipping away.
Keep to a budget
Once its gone

Prioritise building your cash savings 3-6 months easily accessible
Set a new budget including everything like yearly expenses
I use Monzo pots for this so you never have a " Oh shit new tyres/ car insurance/ kids shoes monents again .
Them long-term saving -up to 20K isa
Then kids savings

Thanks! I do a lot of this already. Getting there!

Go for it!! Google the Dave Ramsey Baby steps and go Gazelle

Is it on 0% interest? If not I'd prioritise moving it asap. If you can't then see if you can turn that debt into a loan and close the credit card

Ha Dave Ramsey is actually what made me think about doing this!

Yep everything is 0% interest at the moment - across 3 cards. The biggest chunk (£7k) expires in August so really don’t want to bring that down to minimise a balance transfer fee.

Btw the best loan i can find would be 6% interest so i dont think thats wise?

No no no. Definitely drop a payment if necessary.

If you have a buffer I'd stick with the plan to pay as much off the credit cards each month. Remember as well if one month something crops up and you can't pay the £900 off that month 11 months of £900 is still just shy of £10k!

If you find after 3 months that you feel a bit more comfortable with a bit more of a buffer and say switch to £700 against debt and £200 to savings that's £9000 off the debt in a year and another £1800 in savings.

Keep an eye on the big picture, I'd keep a record of the total debt coming down. If there's a risk of not getting a balance transfer with the card that expires in August I'd be tempted to target that card for the bigger payments. If not is there one of the other two cards that could be paid off easier than the others psychological getting from 3 to 2 cards will give you a boost and it might look more favourable to lenders to have 2 cards rather than 3

Keep chipping away at it OP. Even if you have a couple of bumps in the road and it takes a month or two more than a year to get out of debt, you'll get there and it will be a massive achievement and you'll be in such a better position with £900 more that you can save and/or spend every month.

Have you looked on Moneysavingexpert's eligibility calculator?

I borrow at 0% to make money by putting the money in savings accounts and am still getting the fee free deals. I looked only yesterday as I have a deal expiring next month and there's few available. Santander also have a card that costs £3 a month so can be cheaper than paying a percentage fee.

I found this perspective helpful when I was in a similar position.

You don't really have savings if you owe the money to simeone else. You just have the illusion of savings.

This helped me to change my mindset about 'savings' and helped me to clear the debt more quickly.

If they are 0% then save the money in a pot specifically for credit card and pay it off before the end of the 0% - then you are earning interest in the meantime.

@Fluffycloudsfloatinginthesky Yes, that's a good idea for the OP.

Pay the minimums, and save the rest. Even better, set up a standing order for the current minimum, then for the rest of the year, it will be slightly above the minimum, which removes the minimum payment marker off the account, meaning she's in a better position if she needs another CC offer.

With an average balance of £6k over the year, in an account that pays 4% interest, that's an extra £240 towards paying off the debt.

I would never put money in savings if I had debts to clear. Credit cards are expensive! Personally I have never had or will have anything on credit because you pay more than if you just save for it
I would throw everything at the debt, apart from the but if cash you have already for emergencies. Live frugally for a bit and overhaul your outgoings. Then save after it's cleared - even if you up the amount later to your DCs savings to cover the shortfall it will save you money.

Sounds a great plan, how would you keep yourself motivated for the whole year?

The OP isn't paying any interest, if you have saved enough to buy something it makes more sense to buy it on the 0% credit card for both the consumer protection and to get interest on the money you have during the interest free period before you clear the balance.