Clear some debt or keep some savings?
Discussion
Hi all
I've recently divorced and am now set up in my own rented accommodation, having sold the marital home. I'm coming away with a rather modest £7K and have a personal loan amount of £11K outstanding. Only other 'debt' is a PCP payment, but I'm comfortable with that as it's covered by car allowance. Job and income are relatively secure
Total monthly income is circa £3900 after tax and fixed costs are C£2,750 (including a £341 per month payment for the above loan, all bills, fuel and food). So ultimate disposable is £1150.00
I'm 36 and now the divorce is done would like to start saving for a meaningful house deposit again. So, my choice is whether I should use some / all of the £7K to pay down the loan, reduce my monthly outgoings and build my savings from scratch, or do I keep the £7K (or part thereof) in the bank, keep paying my loan and use that to kickstart a deposit fund?
I know these aren't huge sums to be worrying over, but they're what I'm left with and I want to be sensible and prioritise properly, so just after any general thoughts / experiences. Cheers.
I've recently divorced and am now set up in my own rented accommodation, having sold the marital home. I'm coming away with a rather modest £7K and have a personal loan amount of £11K outstanding. Only other 'debt' is a PCP payment, but I'm comfortable with that as it's covered by car allowance. Job and income are relatively secure
Total monthly income is circa £3900 after tax and fixed costs are C£2,750 (including a £341 per month payment for the above loan, all bills, fuel and food). So ultimate disposable is £1150.00
I'm 36 and now the divorce is done would like to start saving for a meaningful house deposit again. So, my choice is whether I should use some / all of the £7K to pay down the loan, reduce my monthly outgoings and build my savings from scratch, or do I keep the £7K (or part thereof) in the bank, keep paying my loan and use that to kickstart a deposit fund?
I know these aren't huge sums to be worrying over, but they're what I'm left with and I want to be sensible and prioritise properly, so just after any general thoughts / experiences. Cheers.
7k in the bank gives you over 2 months of living costs if you're left without income for whatever reason.
I would put 7k somewhere safe like premium bonds or Marcus and use £1150 each month to repay the loan and/or build the house deposit. If interest rate on the loan is high (5%+), I'd first repay the loan which should take 9 or 10 months at that rate, and then start saving for a deposit at £1150 plus whatever was the loan repayment each month.
If interest on the loan is something like 3%, would probably let the loan run to the schedule and just save £1150 into house deposit from the start.
I would put 7k somewhere safe like premium bonds or Marcus and use £1150 each month to repay the loan and/or build the house deposit. If interest rate on the loan is high (5%+), I'd first repay the loan which should take 9 or 10 months at that rate, and then start saving for a deposit at £1150 plus whatever was the loan repayment each month.
If interest on the loan is something like 3%, would probably let the loan run to the schedule and just save £1150 into house deposit from the start.
Overall D said:
7k in the bank gives you over 2 months of living costs if you're left without income for whatever reason.
I would put 7k somewhere safe like premium bonds or Marcus and use £1150 each month to repay the loan and/or build the house deposit. If interest rate on the loan is high (5%+), I'd first repay the loan which should take 9 or 10 months at that rate, and then start saving for a deposit at £1150 plus whatever was the loan repayment each month.
If interest on the loan is something like 3%, would probably let the loan run to the schedule and just save £1150 into house deposit from the start.
Thanks - you've pretty much confirmed my thinking, albeit I hadn't considered sticking the £7K into premium bonds as opposed to an ISA. I would put 7k somewhere safe like premium bonds or Marcus and use £1150 each month to repay the loan and/or build the house deposit. If interest rate on the loan is high (5%+), I'd first repay the loan which should take 9 or 10 months at that rate, and then start saving for a deposit at £1150 plus whatever was the loan repayment each month.
If interest on the loan is something like 3%, would probably let the loan run to the schedule and just save £1150 into house deposit from the start.
If you keep the loan, how much is the total interest you'll pay on it? That, minus the interest you'll get on the savings (1% or so on Marcus I think) is how much you're paying for the peace of mind of having that money available if you need it. Depending your job security, especially in the current times, having enough to keep you going for a couple of months is definitely worth it IMO.
Premium bonds are a tricky one, on average the return is similar to sticking it in the bank, but there's a slim chance of you getting a big win, but also a reasonable chance of you getting nothing.
Premium bonds are a tricky one, on average the return is similar to sticking it in the bank, but there's a slim chance of you getting a big win, but also a reasonable chance of you getting nothing.
chml said:
Completely off-track OP but I remember some of your posts from last year - how you bearing up now? Hope you're ok!
Not bad thanks, a couple of final bits to sort and then I'll have some closure and can start a new chapter. I definitely feel like I've turned a corner in the last month or so. Genuinely decent of you to remember and ask; it's appreciated. Incognito38 said:
Not bad thanks, a couple of final bits to sort and then I'll have some closure and can start a new chapter. I definitely feel like I've turned a corner in the last month or so. Genuinely decent of you to remember and ask; it's appreciated.
Glad to hear that, and glad you've come through the other sideILikeCake said:
I'd look at it from a different perspective. Would you increase your loan to give you a savings buffer? If not then pay off the loan.
Agreed, if it is not possible to pay off £7K of the loan immediately I would personally save £1K a month for four months and then pay the whole thing off. I would also be looking to cut down your £2750 monthly outgoings as much as you can and putting away as much as you can each month towards a house deposit.
OP, your stated objective is to save enough for a house deposit. It would seem the quickest way (not necessarily the cheapest taking into account the interest cost of the loan) would be to save as much as possible each month and let the loan run as normal.
If you are in rented accommodation currently then getting into your own purchased property sooner may also reduce ‘dead money’ cost of renting?
If you are in rented accommodation currently then getting into your own purchased property sooner may also reduce ‘dead money’ cost of renting?
Not aware of your story OP but glad that things are turning in the right direction.
Not been in your circumstances, but given the world out there, I’d keep the 7k as a buffer (it’s approx 3 months base living costs).
I don’t think you say (1) how long is left on the loan and (2) how much and by when you want to have saved your deposit for.
It might be worth looking at whether you can refinance the loan - beware extending the term (to give lower monthly payments) as that will add to the overall cost and might collide with mortgage applications.
I would also echo targeting how you can further reduce your expenditure. That includes the PCP if you are past the VT point (remember a “car allowance” is just salary you don’t get bonus or pension on).
Final thought - of the 1150 how much will you set aside for discretionary spending. If you identify that and stick to it you’ll find the whole overall budgeting and saving experience easier to work through.
Good luck..!
Not been in your circumstances, but given the world out there, I’d keep the 7k as a buffer (it’s approx 3 months base living costs).
I don’t think you say (1) how long is left on the loan and (2) how much and by when you want to have saved your deposit for.
It might be worth looking at whether you can refinance the loan - beware extending the term (to give lower monthly payments) as that will add to the overall cost and might collide with mortgage applications.
I would also echo targeting how you can further reduce your expenditure. That includes the PCP if you are past the VT point (remember a “car allowance” is just salary you don’t get bonus or pension on).
Final thought - of the 1150 how much will you set aside for discretionary spending. If you identify that and stick to it you’ll find the whole overall budgeting and saving experience easier to work through.
Good luck..!
Some good further advice above, thanks all.
The different views demonstrate my 'dilemma'. The loan has 34 months left to run at £341 per month- so £11,616 if I pay it off over the term. I wouldn't entertain extending the term when I'm otherwise in the black and have savings - generally risk-averse and extending credit seems counter-intuitive.
I am minded to agree with keeping the £7K saved but accessible in case of emergencies. Seems sensible in the current climate.
I can probably reduce my fixed costs a little - Sky and Spotify can come out of there and save me £60 a month - but the rest are properly fixed: Rent, utilities, council tax, car and insurance.
Know and fully agree that my car allowance is just extra salary I'm taxed on. I'm 19 months into a 42 month PCP at £531 a month, so not anywhere near being able to VT unfortunately, even if I chucked the £7K in. An expensive car / PCP is the one properly daft decision I made with hindsight, but I didn't have a crystal ball back then it's still 'affordable', so I've got to suck that up for now.
From the £1150, I can save an absolute minimum of £750 a month so the standing order is set up for that. I'm capable of being fairly strict with myself but the remainder still allows me a little fun money.
Overall I'm fortunate. I have some debt, but it's manageable and I can start saving towards another deposit now. Ideally I'd like to achieve something like £17.5K - £20K inside the next 2 years max, hence my thoughts around whether it's better to wipe debt off and start again or use the funds I have to kickstart that.
The different views demonstrate my 'dilemma'. The loan has 34 months left to run at £341 per month- so £11,616 if I pay it off over the term. I wouldn't entertain extending the term when I'm otherwise in the black and have savings - generally risk-averse and extending credit seems counter-intuitive.
I am minded to agree with keeping the £7K saved but accessible in case of emergencies. Seems sensible in the current climate.
I can probably reduce my fixed costs a little - Sky and Spotify can come out of there and save me £60 a month - but the rest are properly fixed: Rent, utilities, council tax, car and insurance.
Know and fully agree that my car allowance is just extra salary I'm taxed on. I'm 19 months into a 42 month PCP at £531 a month, so not anywhere near being able to VT unfortunately, even if I chucked the £7K in. An expensive car / PCP is the one properly daft decision I made with hindsight, but I didn't have a crystal ball back then it's still 'affordable', so I've got to suck that up for now.
From the £1150, I can save an absolute minimum of £750 a month so the standing order is set up for that. I'm capable of being fairly strict with myself but the remainder still allows me a little fun money.
Overall I'm fortunate. I have some debt, but it's manageable and I can start saving towards another deposit now. Ideally I'd like to achieve something like £17.5K - £20K inside the next 2 years max, hence my thoughts around whether it's better to wipe debt off and start again or use the funds I have to kickstart that.
Ok, so I’d put Sky and Spotify in the fun money pot. That means you can up your minimum saving to say 800/month. That’s 20k after 25 months or 27k after 34 months (co-terminus with your loan repayments).
It does mean no expensive holidays in the meantime but that’s quite doable. And if other circumstances come up in the meantime you will have built a bigger “oh s
t” fund....
It does mean no expensive holidays in the meantime but that’s quite doable. And if other circumstances come up in the meantime you will have built a bigger “oh s
t” fund.... OMITN said:
Ok, so I’d put Sky and Spotify in the fun money pot. That means you can up your minimum saving to say 800/month. That’s 20k after 25 months or 27k after 34 months (co-terminus with your loan repayments).
It does mean no expensive holidays in the meantime but that’s quite doable. And if other circumstances come up in the meantime you will have built a bigger “oh st” fund....
Agreed. I can do without any major holidays / expenses for the forseeable. Quite happy chilling out in my new place nearer to a few mates and having the odd quiet pint once a week. My main hobby is cycling and aside from a bit of bike maintenance that doesn't need to cost me much and gets me outdoors and healthy. Increasing the "oh sIt does mean no expensive holidays in the meantime but that’s quite doable. And if other circumstances come up in the meantime you will have built a bigger “oh s
t” fund.... t" reserve seems eminently sensible.Incognito38 said:
Agreed. I can do without any major holidays / expenses for the forseeable. Quite happy chilling out in my new place nearer to a few mates and having the odd quiet pint once a week. My main hobby is cycling and aside from a bit of bike maintenance that doesn't need to cost me much and gets me outdoors and healthy. Increasing the "oh st" reserve seems eminently sensible.
I used to be a cyclist. I was always telling myself it was cheap, even when running a fleet of 7 bikes at one point..!! t" reserve seems eminently sensible.
Regarding the loan, obviously depends on credit rating, but could you look at a cash advance on a 0% card to pay some/all of it off? You can then build a budget saving x a month for the term of the 0% period so you have enough to pay off the card when it expires. That then allows you to keep the £7K and what would otherwise have been monthly loan repayments somewhere else in the meantime (regular saver, NS&I Income Bonds, Premium Bond etc.).
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