Saving Vs Clearing Debt

tempnam

Hi,

I'm trying to decide what's the best course of action to take here...

I currently pay €300 a month into savings, and put €200 a month off my credit card balance.

I have approx. €2K saved at the moment, with an outstanding balance of €3,400 on my C.C.

Allowing for interest & assuming I don't use the credit card in the meantime etc. it will take me about 18 - 22 months to clear my credit card debt at this rate. But (assuming I also manage to keep saving the same amount) I'll also have between €7,400 and €8,600 saved by then...

So I'm wondering would it be wise to use all of my savings (at the point when my savings = my credit card balance - in around 3 months time) to clear my C.C. debt? I could then theoretically save €500 each month. So if I cleared the C.C. debt in 3 months I'd have no savings - but I could theoretically save €7,500 in 15 months after the C.C. is cleared (Original 18 months minus the 3 months it takes to save enough to clear C.C.).

I should also mention that our fist baby is due this summer... so there will be some extra expense involved with regards to pram, cot, clothes, nappies etc etc etc.....

Personally I think it'd be a bit silly not to have any kind of security there at all... Even if I am losing money each month on the C.C. interest.

I'd love to hear other opinions and/or options...

Thanks.

Anyone

Take the 2k and pay it off the Credit Card, then for the next 3 months pay €500(the €300 you save and the existing €200 you pay) and pay it off the CC.

The interest you save doing this will be around €600. It free's up €200 per month also which you dont need to pay on your debt.

Sarn

I think most people would advocate wiping out the cc debt as you're probably paying over 18% interest while getting less than 2% interest on your savings after tax. However, with a new arrival on the way, a compromise might be to stop saving temporarily and increase the cc repayments to €500 a month. That way you'll still have your safety net and can clear your debt quicker, saving on interest.

Would it be an option to transfer the balance to a low interest cc?

chainsawman

Clear off the credit card is the best option, When it is cleared, start saving €500 a month. Saved you money and less interest. No point to save €300 and pay €200 to c/c and prolong the burden of 18% interest and get only 2.30 % approx interest on savings.

hidinginthebush

You could also consider switching your credit card over, information here indicates a good few credit cards that charge you 0% on any debt transferred over.

tempnam

Thanks for all the suggestions.

Just to add to this... When the missus goes on maternity leave in a couple of months time she'll only get the state maternity benefit, so we'll be down on our joint monthly income.

Also there is a slight risk that I'll be made redundant in the next 6 months.

So I'm a little reluctant to completely wipe out my savings. I suppose it still makes sense to clear the cc now and save as much as possible though. Just scares me to have no 'cushion' until I build up more savings!

Maybe a credit union loan to clear the cc? Savings are in the CU and they have favourable interest rates on loans, don't they...?

chainsawman

tempnam wrote: »

Thanks for all the suggestions.

Just to add to this... When the missus goes on maternity leave in a couple of months time she'll only get the state maternity benefit, so we'll be down on our joint monthly income.

Also there is a slight risk that I'll be made redundant in the next 6 months.

So I'm a little reluctant to completely wipe out my savings. I suppose it still makes sense to clear the cc now and save as much as possible though. Just scares me to have no 'cushion' until I build up more savings!

Maybe a credit union loan to clear the cc? Savings are in the CU and they have favourable interest rates on loans, don't they...?

Sorry about the job, hopefully that will not happen. Seeing you have a credit union account and a job loss, i think a loan of 2500 with 1000 savings to clear the CC arrears and pay back as much as you can within 6 months (€50 a week) and then you can pay easy after that (€20 a week ). You will finish off the loan within 2 years. Maybe others will advise better than i am.

listermint

tempnam wrote: »

Thanks for all the suggestions.

Just to add to this... When the missus goes on maternity leave in a couple of months time she'll only get the state maternity benefit, so we'll be down on our joint monthly income.

Also there is a slight risk that I'll be made redundant in the next 6 months.

So I'm a little reluctant to completely wipe out my savings. I suppose it still makes sense to clear the cc now and save as much as possible though. Just scares me to have no 'cushion' until I build up more savings!

Maybe a credit union loan to clear the cc? Savings are in the CU and they have favourable interest rates on loans, don't they...?

TBH id prefer to be debt free if i was losing my job. So based on that id clear the credit card and start saving more once cleared down. I wouldnt be an advocate of another loan regardless of interest rate from CU. Because you will still be paying this off with social welfare. Or you could be debt free and have more expendable should you lose your job.