I have debts equivalent to six percent of my cash savings (which are £40,000). Too much debt?

Question

Just to clarify: that is £2,400 in debt; £40,000 in savings

Answer 1

Which means you have £2,400 of debt.
A lot better than most people. A little bit of debt always looks good when you go to apply for another credit card, car loan, mortgage, etc. Your debt/net/income ratio is nearly equivalent to being debt free, assuming you do have income. I wouldn't worry about it too much. Of course, it wouldn't hurt to pay off any high interest loans .... but keep those accounts open. Closing them lowers your credit score as lenders thrive on seeing history.

Answer 2

If debt is not working for you (eg It's a mortgage on a property that is appreciating in value, or it's money you owe on assets for a business that will return you far more than borrowing the money is costing) then you are just flushing money down the toilet.

Think about it... If you have £40,000 in savings, but owe £2,400 at, say, 10-15%APR , then every day that passes you owe a little more. If you pay off the £2,400, now you only have £37,600, but it will earn you 7%-10% depending on where you save/invest it...

In other words, debt ALWAYS grows faster than equity. If you wait long enough, your 6% of debt will equal your savings and it will cost you everything to pay it off!

Answer 3

You seem to have the money to pay your debt off. If you are getting a higher return on your investments vs. the percent of interest that accumulates on your debt and you don't need to buy anything big like a house or make a business investment then pay it off slowly (within reason). If you require to go on and take more loans or make major purchases, then I suggest you pay it off because you're killing your credit history. You're credit history is only important if you have plans to make changes in your life. If you plan not to change anything, then debt is not a big thing, so as long as you accumulate more then you loose.

Answer 4

Use the savings to pay off the debt.

Any debt is too much debt. You become a prisoner to it.

Paid off my house loan 10 years ago and never looked back.

It took 10 years of no expensive holidays to do it, but it was well worth it.

Answer 5

I hate parting with money, it has always been my aim to keep a 'nest egg'!
If you owe 2.5k and you are repaying interest free no big problem is it?
On the other hand if you are paying about 15% interest per year on that 2.5k it would matter to me.
I assume you are getting about 5% interest on your savings after tax? so instead of paying 15% on 2.5k you could be getting 5%.
Doesn't really take much working out does it? Pay it off, and don't do it again.

Answer 6

Pay the debt off- what you will save interest payments you can put back in your savings and soon get them back to the same level

Answer 7

Try this Debt Management Company called direct debt management.
Its free and no obligation.
I used it..and they helped me out with my debts by having a single monthly low payment and frozen my interests.
The website is http://www.direct-debt-management.com

Hope that helps!!

Answer 8

Why do you get into debt if you have £40.000 in savings??? Pay the debt out of your savings and use cash in future not credit.

Answer 9

Convert into Turkish Lira and deposit in Turkish bank at 17.5%-25% interest and you will be sorted. Turkish general election coming up and would make the pound very strong against the lira.
Easy money !!!

Answer 10

get rid of the debt honey...you will still have loads of savings...and wonderful peace of mind when you are debt free...i am - and i am SO happy!