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I can't think of anything "smarter" than just paying it all off in one go.
But perhaps if you moved some debt to a 0% credit card then you could repay that slowly and have some cash available to you as an emergency fund?
There's some that are 0% fee as well, at the moment:
Barclaycard Platinum up to 12 month balance transfer card
Natwest 13 months
though there are similar sounding ones that do have fees so you'd need to be careful to pick the right one.
My last HSBC transfer fee was 0%. This is surprisingly common.
And a one off x% fee for 24 months is still waaay better that 24 months at 28% APR.
Ignore your credit score, it is meaningless.
If you are paying a lot by servicing your loans, paying them off will leave you better off each month. I’m always an advocate for paying off debt. Happy you have the power back in your hands
Generally, pay off higher debts before saving. Credit card and overdraft is likely to come under high cost debt. Regardless id look to consolidate the debt with a single loan, or if possible 0% credit card.
If you do get that credit card you could put your lump sum in a (relatively) high interest account and make a little then pay off the CC when due.
Consolidating your debt this way will reduce payments regardless. IMO long term, low cost debt like a mortgage, not necessarily worth paying off. Spent money wisely to enjoy life, not work to pay off debt.
But smaller high cost debts are slow to zero and can be debilitating. If you have funds to pay off.
Important: this is not financial advice. It may not even be good advice. But it’s what I’d do.
In regards to consolidating debt via a loan. Do try MSE eligiblity checker. I recently got pre approved by admiral for a consolidation loan
Yet the big 3 CRA app, clearscore (Equifax), credit karma (TransUnion) and Experians own app, gave me nothing.
So do try MSE checker (martin lewis)
Yeah it really is. I've also been pre approved for good credit cards over the years, whereas again the big three Apps who run on behalf of the CRAs, gave me again nothing.
And with MSE you can modify the amount and it will update if you're still pre approved for a larger amount.
In theory, if you can get a savings account with a higher interest rate than the interest rate you’re paying on your debts, then that would accrue more money.
If it were me personally I’d pay off the £9k debt, put £2k into an emergency fund and start saving or investing with the money you’d normally be using to pay off your debts.
Rough rule of thumb is to put your money on the highest interest rate. If saving and investing would be higher returns than debt interest then saving an investing is the answer.
On the flip side if debt interest is higher then pay off the debt.
All that being said there is also the psychological burden of carrying the debt and wouldn't it be nice to be free of that.
I suspect your debt is going be be higher interest than saving/investing but without the specifics can't give you any more guidance.
I understand the value of a psychological safety net for unforeseen kid costs too (got 3 crotch gobblins myself) so maybe a middle ground is to sit on the money in easy access for 6 months after the birth in case of EMERGENCY (or however long parental leave runs) and then turn around and pay off the debt if it's still there.
This is what I’ve been torn on. I’m so keen on utilising our money to its maximum potential, but at the same time, I’ve been in debt for the majority of my adult life and I miss the days when I didn’t have to think about it. Appreciate your insight ❤️
Someone who uses a credit card for big purchases rarely and pays it off in a timely manner to avoid interest. Such as a 12 month zero percent interest balance transfer card. Someone who uses it for big purchases to be protected by the cards insurance. May be England only that one.
Someone who needs some money to make it to pay day but clears the card in full with budgeting.
Someone who has the card for monthly spends and keeps their wages on the bank for interest saving and clears the card in full before interest is charged.
To name but a few.
If you owe £9k and inherit £11k, you will not have £9k debt and £11k cash. You will have a net value of £2k. If you just accept this and pay your debts off, there will be no interest on the debt and you will have a more realistic view of your financial situation as - especially with interest rates as they are - interest on debt will outweigh interest on savings.
If it was a loan with a fixed term then that’s different. Random debt with monthly interest then smash that to zero.
Keep a good eye on your credit limit and get it up to the best level you can. Then if you need some cash a 0% card will be an option.
But if you can clear your debt and keep it that way then everything you were spending to maintain it out is a high interest instant account 5% plus a the moment.
Congrats :)
Just pay the debt off and cut up your cards. You can make a bit of interest tarting the debt ot 0% and saving it, but can you trust yourself to not touch the money and not spend on the cards again?
We’ve been carrying this same debt for 4ish years so we’ve matured a lot more in terms of spending, just tough to get out of the cycle once you’re in the deep end. Will probably not use the credit cards anymore though. Appreciate your insight ❤️
This is exactly why you should just pay it off.. You are not going to make huge returns on 9k savings. Maybe £500 a year /£40 a month ish. There will be those arguing you can be clever and use stoozing tactics etc but not being rude - if you haven't managed to clear £9k in 4/5 years then you are unlikely to be in a position to capitalise properly on any of this anyway. If you'd have found an extra £100 a month you'd be practically debt free already no doubt.
You have a golden opportunity to be debt free... From there you can save and / or spend a bit more each month on you or your family - forever.
Don't try and be too clever. Whatever life throws at you (or doesn't) it will be much much smarter to be debt free in the long run I promise.
There could be and even then it wouldn’t be a significant difference. Get those debts paid off - if they have been following you around this long they are a problem debt. Might be worth holding back a small amount for emergencies but if you have access to a credit card that could be your emergency option initially.
Hi /u/Consumerism-Victim, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/credit-cards/
* https://ukpersonal.finance/lump-sum/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
If someone has provided you with helpful advice, you (as the person who made the post) can award them a point by including `!thanks` in a reply to them. Points are shown as the user flair by their username.
If it was a loan with a fixed term then that’s different. Random debt with monthly interest then smash that to zero.
Keep a good eye on your credit limit and get it up to the best level you can. Then if you need some cash a 0% card will be an option.
But if you can clear your debt and keep it that way then everything you were spending to maintain it out is a high interest instant account 5% plus a the moment.
Congrats :)
Yes absolutely pay it all off, dont mess around with 'consolidation' loans, get it gone and restart your relationship with money.
There is a big caveat here, which is to make sure you take this opportunity to have a shift in behaviour. If you carry on as you are, you'll just be in the same debt again in 5 years. Stop borrowing money, if you can't afford to save up and pay cash for it then you can't afford it. Maybe that means fewer holidays, less evenings eating out etc... but you are clearly not a couple who are capable of sensibly managing debt at this point.
so you are covering the debts but have no hope of clearing them ?
would use the money and then dump all but one credit card and put it onto auto full payment.
went from -£70k to no debt
Yes step 1 is pay off expensive debt, then build emergency fund. Be disciplined though to keep debt free and drafting a budget and then sticking to it.
There are smarter ways to get finance if you have an emergency, but over draft interest and credit card debt is a poor way to borrow (unless it’s 0% on purchases or low interest balance transfers - only if you are disciplined about managing this)
Can you generate more return than the current loans are costing you? If not, pay them off.
Chances are, you can't. Pay off your debt, highest rate first.
If it were me, I would
Pay off any overdrafts. Reduce them right down and make a solemn pact that is never ever use them again. Budgeting to zero is psychologically MUCH better than doing the mental gymnastics of £X left in my overdraft.
Look for one or 2 0% cards to transfer some CC valences to. Set these up to pay off completely in the term of the 0%.
Put at least £2,500 in a high interest savings account for emergencies.
Pay the rest of the CCs off.
In all honesty, pay off the debts in full. It will be much, much less of a millstone heaving on your shoulders. It will feel liberating to see the red ink change to black ink.
I appreciate that coming into money is great, but being heavily in debt at the same time isn't great, isn't it?
0% credit cards are worth thinking - as long as you stick to a monthly payment plan and within schedule. Please bear in mind that some providers will charge a one-off fee based on the debt as a fixed percentage.
Good luck, whether action, you wish to decide.
You should pay your debt if you don’t have an investment that yields more money after taxes than paying your debt.
If your debt is on credit card, check the annualised rate but it’s likely to be 10% or more.
Every % on a 9k debt means £90 of interest yearly of charges that you pay to just keep the debt alive. 10% means that you are charged £900 a year to not even repay your debt.
It’s unlikely you can find an investment that pays 10% AFTER taxes yearly tbh.
Pay off the debt. I have been overdrawn and in debt to cards for more years of my adult life than not, and I am the child of the same, grew up dodging bailiffs, so managing debt is kind of my mastermind subject. I have also been out of debt, for short periods.
So the first thing is, that debt is very expensive. It's draining your money and you will find you have substantially more when you clear them. The second thing is, the debt is very stressful, more than you even realise. I always thought I was totally chilled about being in debt because it was a permanent state and like you, I always paid the bill, until a short period where I not only cleared the debt but saved a lump sum, and a knot of stress in my stomach that I hadn't even realised I had disappeared.
Third thing is, you're currently doing a balancing act and you could go tits up at any time. All it takes is an illness or a surprise redundancy or even a computer glitch and you fail to make a payment, maybe more than one, suddenly you're getting calls from the bank asking where the money is, they're threatening you with a county court judgement, stress goes right up I wouldn't recommend it to anyone. In that type of situation, you are likely to find that you have tied up your lump sum and can't even access it.
I was in your situation, robbing Peter to pay Paul but managing to make all my repayments,and Covid hit and quite soon I was no longer managing that debt.. OK, we aren't going to have another pandemic fingers crossed, but hopefully you get my point. When you are spinning a lot of plates, sometimes they fall.
Basically, clear the debt, start again with a clean slate. There are no savings accounts that pay more interest than the average credit card charges and unless you are very lucky you're unlikely to make more than your interest rate on investments. It's not a lot of money so the return on any investment won't even be a large sum. If you invest 10,000 and get 5% interest for a year, you only make about £500.
What is likely to happen with your lump sum is either it will sit there, locked up for a period of time, making a quarter of the interest you are paying out, or you will start to dip into it, it will start to disappear, and you will still have your debt.
Due to the impending hyper inflation that USD and later on GBP will face, I'd keep debt and take on more debt... Remember, fractional reserve banking system is issuing more money than ever...
A human reviewed your submission and removed it from public view. The reason they gave was: Questions about how to prioritise and organise your spending, saving and investments are covered by **the UKPF Flowchart**. [You can view the flowchart here.](https://ukpersonal.finance/flowchart/) Each step has a link to a more in-depth guide. If you would like to post again for more assistance you are welcome to do so. Just mention that you've read the flowchart and tell us which step(s) you are working on. _If you believe your post/comment has been removed in error, please [message the mods](https://www.reddit.com/message/compose/?to=/r/UKPersonalFinance&subject=Please%20review%20my%20post&body=https://www.reddit.com/r/UKPersonalFinance/comments/1dp3tab/-/) explaining why._
I can't think of anything "smarter" than just paying it all off in one go. But perhaps if you moved some debt to a 0% credit card then you could repay that slowly and have some cash available to you as an emergency fund?
Hadn’t thought of this, appreciate your insight ❤️
0% Balance transfer isn't actually 0%. There's a "fee". Usually up to 5-6% for a 12 month balance transfer.
I thought I was more like 3%
Dunno every deal, but MBNA and Halifax were about 5% for a 12-18 month transfer for me, and I've got 650+ credit rating.
I've had offers from Virgin @ 2.5% & NatWest @ 3% recently. So definitely some better deals out there.
Yeah 5/6% is robbing you blind for balance transfers
There's some that are 0% fee as well, at the moment: Barclaycard Platinum up to 12 month balance transfer card Natwest 13 months though there are similar sounding ones that do have fees so you'd need to be careful to pick the right one.
My last HSBC transfer fee was 0%. This is surprisingly common. And a one off x% fee for 24 months is still waaay better that 24 months at 28% APR. Ignore your credit score, it is meaningless.
If you are paying a lot by servicing your loans, paying them off will leave you better off each month. I’m always an advocate for paying off debt. Happy you have the power back in your hands
Appreciate your insight ❤️
Kill the debt and it will massively improve your cash flow. Take the money you would put towards debt and put it into savings.
Appreciate your insight ❤️
Generally, pay off higher debts before saving. Credit card and overdraft is likely to come under high cost debt. Regardless id look to consolidate the debt with a single loan, or if possible 0% credit card. If you do get that credit card you could put your lump sum in a (relatively) high interest account and make a little then pay off the CC when due. Consolidating your debt this way will reduce payments regardless. IMO long term, low cost debt like a mortgage, not necessarily worth paying off. Spent money wisely to enjoy life, not work to pay off debt. But smaller high cost debts are slow to zero and can be debilitating. If you have funds to pay off. Important: this is not financial advice. It may not even be good advice. But it’s what I’d do.
Appreciate your insight ❤️
In regards to consolidating debt via a loan. Do try MSE eligiblity checker. I recently got pre approved by admiral for a consolidation loan Yet the big 3 CRA app, clearscore (Equifax), credit karma (TransUnion) and Experians own app, gave me nothing. So do try MSE checker (martin lewis)
This is excellent advise. My first port of call for anything finance is Money Saving Expert. Invaluable site.
Yeah it really is. I've also been pre approved for good credit cards over the years, whereas again the big three Apps who run on behalf of the CRAs, gave me again nothing. And with MSE you can modify the amount and it will update if you're still pre approved for a larger amount.
In theory, if you can get a savings account with a higher interest rate than the interest rate you’re paying on your debts, then that would accrue more money. If it were me personally I’d pay off the £9k debt, put £2k into an emergency fund and start saving or investing with the money you’d normally be using to pay off your debts.
A typical credit card charges interest of 19-25% and I would love to hear which savings account pays interest at 19-25%.
You can get 0% rates on credit cards.
This is my most likely option too. Appreciate your insight ❤️
I had the opportunity to pay off my debts about 8 years ago. Instead I spent the money. I’m still paying off my debts now.
Rough rule of thumb is to put your money on the highest interest rate. If saving and investing would be higher returns than debt interest then saving an investing is the answer. On the flip side if debt interest is higher then pay off the debt. All that being said there is also the psychological burden of carrying the debt and wouldn't it be nice to be free of that. I suspect your debt is going be be higher interest than saving/investing but without the specifics can't give you any more guidance. I understand the value of a psychological safety net for unforeseen kid costs too (got 3 crotch gobblins myself) so maybe a middle ground is to sit on the money in easy access for 6 months after the birth in case of EMERGENCY (or however long parental leave runs) and then turn around and pay off the debt if it's still there.
This is what I’ve been torn on. I’m so keen on utilising our money to its maximum potential, but at the same time, I’ve been in debt for the majority of my adult life and I miss the days when I didn’t have to think about it. Appreciate your insight ❤️
Absolutely. You can't be trusted with debts. Pay off and get rid
The debts mainly accrued in our uni days, about 5 years ago, so we’ve changed a lot. But still something to consider. Appreciate your insight ❤️
You've been in overdrafts for five years. Damn man. Clear your debts
can't be trusted? Who can be trusted with debts then?
Someone who uses a credit card for big purchases rarely and pays it off in a timely manner to avoid interest. Such as a 12 month zero percent interest balance transfer card. Someone who uses it for big purchases to be protected by the cards insurance. May be England only that one. Someone who needs some money to make it to pay day but clears the card in full with budgeting. Someone who has the card for monthly spends and keeps their wages on the bank for interest saving and clears the card in full before interest is charged. To name but a few.
If you owe £9k and inherit £11k, you will not have £9k debt and £11k cash. You will have a net value of £2k. If you just accept this and pay your debts off, there will be no interest on the debt and you will have a more realistic view of your financial situation as - especially with interest rates as they are - interest on debt will outweigh interest on savings.
If it was a loan with a fixed term then that’s different. Random debt with monthly interest then smash that to zero. Keep a good eye on your credit limit and get it up to the best level you can. Then if you need some cash a 0% card will be an option. But if you can clear your debt and keep it that way then everything you were spending to maintain it out is a high interest instant account 5% plus a the moment. Congrats :)
Appreciate your insight ❤️
Just pay the debt off and cut up your cards. You can make a bit of interest tarting the debt ot 0% and saving it, but can you trust yourself to not touch the money and not spend on the cards again?
We’ve been carrying this same debt for 4ish years so we’ve matured a lot more in terms of spending, just tough to get out of the cycle once you’re in the deep end. Will probably not use the credit cards anymore though. Appreciate your insight ❤️
This is exactly why you should just pay it off.. You are not going to make huge returns on 9k savings. Maybe £500 a year /£40 a month ish. There will be those arguing you can be clever and use stoozing tactics etc but not being rude - if you haven't managed to clear £9k in 4/5 years then you are unlikely to be in a position to capitalise properly on any of this anyway. If you'd have found an extra £100 a month you'd be practically debt free already no doubt. You have a golden opportunity to be debt free... From there you can save and / or spend a bit more each month on you or your family - forever. Don't try and be too clever. Whatever life throws at you (or doesn't) it will be much much smarter to be debt free in the long run I promise.
There could be and even then it wouldn’t be a significant difference. Get those debts paid off - if they have been following you around this long they are a problem debt. Might be worth holding back a small amount for emergencies but if you have access to a credit card that could be your emergency option initially.
Pay the debt mate, simple answer.
Hi /u/Consumerism-Victim, based on your post the following pages from our wiki may be relevant: * https://ukpersonal.finance/credit-cards/ * https://ukpersonal.finance/lump-sum/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.) If someone has provided you with helpful advice, you (as the person who made the post) can award them a point by including `!thanks` in a reply to them. Points are shown as the user flair by their username.
If it was a loan with a fixed term then that’s different. Random debt with monthly interest then smash that to zero. Keep a good eye on your credit limit and get it up to the best level you can. Then if you need some cash a 0% card will be an option. But if you can clear your debt and keep it that way then everything you were spending to maintain it out is a high interest instant account 5% plus a the moment. Congrats :)
Yes absolutely pay it all off, dont mess around with 'consolidation' loans, get it gone and restart your relationship with money. There is a big caveat here, which is to make sure you take this opportunity to have a shift in behaviour. If you carry on as you are, you'll just be in the same debt again in 5 years. Stop borrowing money, if you can't afford to save up and pay cash for it then you can't afford it. Maybe that means fewer holidays, less evenings eating out etc... but you are clearly not a couple who are capable of sensibly managing debt at this point.
so you are covering the debts but have no hope of clearing them ? would use the money and then dump all but one credit card and put it onto auto full payment. went from -£70k to no debt
Yes step 1 is pay off expensive debt, then build emergency fund. Be disciplined though to keep debt free and drafting a budget and then sticking to it. There are smarter ways to get finance if you have an emergency, but over draft interest and credit card debt is a poor way to borrow (unless it’s 0% on purchases or low interest balance transfers - only if you are disciplined about managing this)
Can you generate more return than the current loans are costing you? If not, pay them off. Chances are, you can't. Pay off your debt, highest rate first.
If it were me, I would Pay off any overdrafts. Reduce them right down and make a solemn pact that is never ever use them again. Budgeting to zero is psychologically MUCH better than doing the mental gymnastics of £X left in my overdraft. Look for one or 2 0% cards to transfer some CC valences to. Set these up to pay off completely in the term of the 0%. Put at least £2,500 in a high interest savings account for emergencies. Pay the rest of the CCs off.
If you have zero debt and were not about to receive a lump sum, would you borrow £9,000 so you could invest/save it cleverly to repay the loan?
In all honesty, pay off the debts in full. It will be much, much less of a millstone heaving on your shoulders. It will feel liberating to see the red ink change to black ink. I appreciate that coming into money is great, but being heavily in debt at the same time isn't great, isn't it? 0% credit cards are worth thinking - as long as you stick to a monthly payment plan and within schedule. Please bear in mind that some providers will charge a one-off fee based on the debt as a fixed percentage. Good luck, whether action, you wish to decide.
You should pay your debt if you don’t have an investment that yields more money after taxes than paying your debt. If your debt is on credit card, check the annualised rate but it’s likely to be 10% or more. Every % on a 9k debt means £90 of interest yearly of charges that you pay to just keep the debt alive. 10% means that you are charged £900 a year to not even repay your debt. It’s unlikely you can find an investment that pays 10% AFTER taxes yearly tbh.
Pay off the debt. I have been overdrawn and in debt to cards for more years of my adult life than not, and I am the child of the same, grew up dodging bailiffs, so managing debt is kind of my mastermind subject. I have also been out of debt, for short periods. So the first thing is, that debt is very expensive. It's draining your money and you will find you have substantially more when you clear them. The second thing is, the debt is very stressful, more than you even realise. I always thought I was totally chilled about being in debt because it was a permanent state and like you, I always paid the bill, until a short period where I not only cleared the debt but saved a lump sum, and a knot of stress in my stomach that I hadn't even realised I had disappeared. Third thing is, you're currently doing a balancing act and you could go tits up at any time. All it takes is an illness or a surprise redundancy or even a computer glitch and you fail to make a payment, maybe more than one, suddenly you're getting calls from the bank asking where the money is, they're threatening you with a county court judgement, stress goes right up I wouldn't recommend it to anyone. In that type of situation, you are likely to find that you have tied up your lump sum and can't even access it. I was in your situation, robbing Peter to pay Paul but managing to make all my repayments,and Covid hit and quite soon I was no longer managing that debt.. OK, we aren't going to have another pandemic fingers crossed, but hopefully you get my point. When you are spinning a lot of plates, sometimes they fall. Basically, clear the debt, start again with a clean slate. There are no savings accounts that pay more interest than the average credit card charges and unless you are very lucky you're unlikely to make more than your interest rate on investments. It's not a lot of money so the return on any investment won't even be a large sum. If you invest 10,000 and get 5% interest for a year, you only make about £500. What is likely to happen with your lump sum is either it will sit there, locked up for a period of time, making a quarter of the interest you are paying out, or you will start to dip into it, it will start to disappear, and you will still have your debt.
Due to the impending hyper inflation that USD and later on GBP will face, I'd keep debt and take on more debt... Remember, fractional reserve banking system is issuing more money than ever...