Credit debt - pay off quickly or keep cash in bank?

[manracer]

Hi all,

Backstory: before starting my own business 4 years I had around £25k of credit card debt & loans.

Fast forward to today and I have £7k of credit card debt, no loans and around £10k in savings. I have today ended the rental on my Tesla (due to working from home for the foreseeable). I am able to live very comfortably (something I am very grateful of).

all credit debt has always been on 0%. current deal has 10 months left. Before covid19, i would of just paid around £350 a month, and do a balance transfer in February 2021. would take around 20 months but i'm no eager to get my debts cleared ASAP

I am in a position where i can now do one of the following:

A) spread the cost over the remaining term and pay £700 a month
B) pay it off over around 7 instalments of £1000
C) continue to pay around £350 a month.

I have enough spare per month to pay up to around £2k a month if needs be, but don't want to stretch myself. I like my lifestyle.

I guess i don't know whether its best to stockpile cash due to what could happen when lock down ends, just the uncertainty. I keep seeing people say "cash is king and will be even more so after covid19" etc

If I commit to option B and need a car in the next few months, ill just buy a 2k run around with cash. Intention is to get something very nice once this debt is cleared, providing i'm still in a position to do so.

Also, im currently supporting my partner who is a key worker - shes been using the Tesla daily for the past month.

Thanks. all constructive comments welcomed.

[Powerfully Built PSC Director - Outside IR35]

manracer said:

Hi all,

Backstory: before starting my own business 4 years I had around £25k of credit card debt & loans.

Fast forward to today and I have £7k of credit card debt, no loans and around £10k in savings. I have today ended the rental on my Tesla (due to working from home for the foreseeable). I am able to live very comfortably (something I am very grateful of).

all credit debt has always been on 0%. current deal has 10 months left. Before covid19, i would of just paid around £350 a month, and do a balance transfer in February 2021. would take around 20 months but i'm no eager to get my debts cleared ASAP

I am in a position where i can now do one of the following:

A) spread the cost over the remaining term and pay £700 a month
B) pay it off over around 7 instalments of £1000
C) continue to pay around £350 a month.

I have enough spare per month to pay up to around £2k a month if needs be, but don't want to stretch myself. I like my lifestyle.

I guess i don't know whether its best to stockpile cash due to what could happen when lock down ends, just the uncertainty. I keep seeing people say "cash is king and will be even more so after covid19" etc

If I commit to option B and need a car in the next few months, ill just buy a 2k run around with cash. Intention is to get something very nice once this debt is cleared, providing i'm still in a position to do so.

Also, im currently supporting my partner who is a key worker - shes been using the Tesla daily for the past month.

Thanks. all constructive comments welcomed.

What's the limit on the card?

[manracer]

Powerfully Built PSC Director - Outside IR35 said:

What's the limit on the card?

I think about £10k (with 5k on it) and 7k (with 2k on it) - balance split over 2 cards due to limits at the time.

I have an amex that i pay off in full each month (for avios), limit is about 25k on that one

[2 GKC]

No point rushing to pay off interest free debt. Clear it when the deal expires and do something with the cash until then

[manracer]

2 GKC said:

No point rushing to pay off interest free debt. Clear it when the deal expires and do something with the cash until then

That was part of my thinking, i was just thinking of reduce my monthly outgoings. As of end of this month im £600 better off by not having the car.

Also worth adding, current work contract ends mid september, I guess part of my thinking was getting it paid off before then so that if the worse happens and i struggle to find work, i have minimal outgoings (around £600 a month vs £1800)

[Powerfully Built PSC Director - Outside IR35]

manracer said:

Powerfully Built PSC Director - Outside IR35 said:

What's the limit on the card?

I think about £10k (with 5k on it) and 7k (with 2k on it) - balance split over 2 cards due to limits at the time.

I have an amex that i pay off in full each month (for avios), limit is about 25k on that one

I believe the CC companies get a bit fidgety if over 50% credit utilisation, which you are not. I'd say just pay them off on the drip but have a backup plan in place - just in case you can't get new balance transfer cards when the 0% term comes to an end.

[manracer]

Powerfully Built PSC Director - Outside IR35 said:

manracer said:

Powerfully Built PSC Director - Outside IR35 said:

What's the limit on the card?

I think about £10k (with 5k on it) and 7k (with 2k on it) - balance split over 2 cards due to limits at the time.

I have an amex that i pay off in full each month (for avios), limit is about 25k on that one

I believe the CC companies get a bit fidgety if over 50% credit utilisation, which you are not. I'd say just pay them off on the drip but have a backup plan in place - just in case you can't get new balance transfer cards when the 0% term comes to an end.

another option is to pay what i pay now, around £350 a month (min is about £160) and add the rest (around £1.5k) to ISA so at any point i could pay them off, but if i dont need to, i always have a decent(ish) cash reserve.

just double checked the utilisation :

barclaycard - 5k with 11k limit
virgin 2k with 8k limit.

[Saweep]

I would be very cautious of paying off any debt right now if you have the cash in the bank.

I obviously don't know your business but liquidity might end up being the difference between bankruptcy or not for many many people over the next few months.

[Powerfully Built PSC Director - Outside IR35]

manracer said:

another option is to pay what i pay now, around £350 a month (min is about £160) and add the rest (around £1.5k) to ISA so at any point i could pay them off, but if i dont need to, i always have a decent(ish) cash reserve.

just double checked the utilisation :

barclaycard - 5k with 11k limit
virgin 2k with 8k limit.

Some good limits there and keep an eye on them too. An indicator of where things may go is sudden credit limit decreases. I remember that happening to me during the run up to the Financial Crisis with Egg and Barclaycard.

[DanL]

Saweep said:

I would be very cautious of paying off any debt right now if you have the cash in the bank.

I obviously don't know your business but liquidity might end up being the difference between bankruptcy or not for many many people over the next few months.

This, for me, given that you say it’s interest free. You might want to use the old car payments that you were (presumably) comfortable with to pay down the cards instead, while keeping the cash in the bank?

Depends what your outlook is, I think...

[survivalist]

I’d stay as liquid as possible at this point. As they are interest free just pay the minimum and put the rest in savings.

That way if you come out of this fine you can clear the CC balance. If for any reason you need the cash it’s available for you.

Doubt anyone knows how this is going to play out so better safe than sorry

[Jimmy Recard]

I’d be paying the minimum payment and banking the rest at the best interest rate you can find

[manracer]

Powerfully Built PSC Director - Outside IR35 said:

manracer said:

another option is to pay what i pay now, around £350 a month (min is about £160) and add the rest (around £1.5k) to ISA so at any point i could pay them off, but if i dont need to, i always have a decent(ish) cash reserve.

just double checked the utilisation :

barclaycard - 5k with 11k limit
virgin 2k with 8k limit.

Some good limits there and keep an eye on them too. An indicator of where things may go is sudden credit limit decreases. I remember that happening to me during the run up to the Financial Crisis with Egg and Barclaycard.

The old gold amex had no limit, just a portal where you could check in advance if a transaction amount would be authorised. The hypothetical £100k McLaren purchase would of been approved, paying it back would of been another matter!

[manracer]

DanL said:

Saweep said:

I would be very cautious of paying off any debt right now if you have the cash in the bank.

I obviously don't know your business but liquidity might end up being the difference between bankruptcy or not for many many people over the next few months.

This, for me, given that you say it’s interest free. You might want to use the old car payments that you were (presumably) comfortable with to pay down the cards instead, while keeping the cash in the bank?

Depends what your outlook is, I think...

Pretty much this was one of my options, up payment from £350 to £600. Then I'm still £350 better off than last month, and even more comfortable.

[manracer]

survivalist said:

I’d stay as liquid as possible at this point. As they are interest free just pay the minimum and put the rest in savings.

That way if you come out of this fine you can clear the CC balance. If for any reason you need the cash it’s available for you.

Doubt anyone knows how this is going to play out so better safe than sorry

I can't disagree, I think I'll go down the middle, double what I pay now, bank an extra £350, I'm also clear this month of a family loan from when we purchased the house. That was £250 a month. All debts coming to an end, feels very very good!

[Shanksy87]

I'm in a similar situation to you; a few years back I had a whole heel of (manageable) debt that has now U turned into a small amount on a 0% card and a good amount of savings. It hard but satisfying graft when you're not a natural money squirrel, isn't it?

From what I can see liquidity is going to be worth more than anything else in 2020, so my tactic has changed from paying off the card at pace and trickling money into savings, to smashing money into savings and paying the minimum on the card, with the aim of clearing the card in full just before the 0% runs out to boost my liquidity should something get belly up.

Just my 2 pence.

[manracer]

Shanksy87 said:

I'm in a similar situation to you; a few years back I had a whole heel of (manageable) debt that has now U turned into a small amount on a 0% card and a good amount of savings. It hard but satisfying graft when you're not a natural money squirrel, isn't it?

From what I can see liquidity is going to be worth more than anything else in 2020, so my tactic has changed from paying off the card at pace and trickling money into savings, to smashing money into savings and paying the minimum on the card, with the aim of clearing the card in full just before the 0% runs out to boost my liquidity should something get belly up.

Just my 2 pence.

Thanks, useful info.

I agree about that nice feeling. I've always been able to manage debt and have a nice house, car and lifestyle etc - but it doesn't feel the same as when them debts are coming to an end and you are more and more comfortable each month.

Crucially i have been very transparent with my 18 y/o son, I've drilled into him about not getting into debt, living within your means, and also, coming to dad before you make a silly decision - i don't want him to do what I did.

[Jimmy Recard]

Shanksy87 said:

I'm in a similar situation to you; a few years back I had a whole heel of (manageable) debt that has now U turned into a small amount on a 0% card and a good amount of savings. It hard but satisfying graft when you're not a natural money squirrel, isn't it?

From what I can see liquidity is going to be worth more than anything else in 2020, so my tactic has changed from paying off the card at pace and trickling money into savings, to smashing money into savings and paying the minimum on the card, with the aim of clearing the card in full just before the 0% runs out to boost my liquidity should something get belly up.

Just my 2 pence.

Yep. And apart from anything else, you'll have more money because it'll earn some interest

[VR99]

Just to echo some of the comments above I've done similar in that I've lowered my repayment rate for some 0% cc debt I've been holding. I was paying it off more aggressively earlier this yr but also thought it wise to reduce for now during the uncertainty..my debt now stands at less than 10% of my cash savings so comfortable to just keep it that way for now.