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psychocandy
8th September 2011, 11:38
Got some debts from permiedom that I'd like to pay off now that I've got the chance, however, I'm all too aware that you really need to build up savings/warchest for a rainy day when contracting. So with that in mind, we've been trying not to spend too much.

Used my redundancy payment to keep us going for the past few months so haven't touched the contract income yet. I also paid off a higher rate credit card.

Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them. Obviously, the payments mean my monthly outgoings are more (so I need more saved per month to last out any bench time)

Current gig is looking good. Been extended till end of year and looks like it might run and run (yes, I know nothings guaranteed and it could all go t*ts up tomorrow!)

So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?

I guess one consideration is that if you've got too much saved you aint going to be able to claim any JSA during bench time. Not that its much but every little helps.

Clippy
8th September 2011, 11:47
Which category does this topic fall into?

Accounting or Legal?

northernladuk
8th September 2011, 12:04
Which category does this topic fall into?

Accounting or Legal?

General or Light Relief IMO...

eek
8th September 2011, 12:27
So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?



Build up enough cash for 6 months bench time then start paying your debts off.

Jog On
8th September 2011, 12:28
Got some debts from permiedom that I'd like to pay off now that I've got the chance, however, I'm all too aware that you really need to build up savings/warchest for a rainy day when contracting. So with that in mind, we've been trying not to spend too much.

Used my redundancy payment to keep us going for the past few months so haven't touched the contract income yet. I also paid off a higher rate credit card.

Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them. Obviously, the payments mean my monthly outgoings are more (so I need more saved per month to last out any bench time)

Current gig is looking good. Been extended till end of year and looks like it might run and run (yes, I know nothings guaranteed and it could all go t*ts up tomorrow!)

So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?

I guess one consideration is that if you've got too much saved you aint going to be able to claim any JSA during bench time. Not that its much but every little helps.

Pay the debts off first IMO, then build warchest when you're debt free. Nothing worse than having debt payments on top of everything else when there's nothing coming in.

northernladuk
8th September 2011, 12:35
Pay the debts off first IMO, then build warchest


Build up enough cash for 6 months bench time then start paying your debts off.

As you can see below there are differing opinions on what is a very personal situation. The bottom line is this is your situation and you are the only one that can answer this. It is a pretty basic personal finance situation and is a pretty poor if you can't figure out what to do with.

There is no right or wrong answer, just do what is best for you and your attitude/approach to your finances.

craig1
8th September 2011, 12:44
I'm paid in a different way to most contractors as I go through a LLP, my typical split of income is:

1/3 warchest
1/3 tax account
1/3 for use as I see fit, including bills.

The tax account always has too much in it and I reconcile it each year when I do my SA return with the balance being returned to me for blowing on whatever fluff I want at that time.

If I had long-term debts though, that would come out of the last 1/3 as there's no point in being debt free if you've no money to tide you over if you're unexpectedly benched. I'd go with eek's suggestion of a 6 month warchest then pay off debts aggressively.

I'm comfortably over 12 months warchest now so that 1/3 is currently going into longer term savings and investments.

Wanderer
8th September 2011, 21:35
Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them.

The way I look at it is if I have money in the bank earning 1% interest and a credit card costing me 10 or 20% then I'm better to pay off the credit card. Why pay interest on a credit card debt if you could pay it off? That is presuming you could borrow the money back if you needed it.

My golden rule is to never spend money on a credit card if I don't have enough cash to pay it back when I get the statement.

MarillionFan
8th September 2011, 22:02
Start a spreadsheet.

Enter your savings, Corp tax, vat, debts, credit cards, loans etc and then work out where you'll be in
any month based on ingoing/outgoings etc. Then you can you can
implement things like credit card balance xfers and when Corp or vat is paid to best plan out your cash flow. Do that and you'll never find yourself
caught out.

NotAllThere
9th September 2011, 04:52
Which category does this topic fall into?

Accounting or Legal?

Borderline. I think General is better.

What Wanderer says is true, but you need to factor in taxation - assuming your ltd. 40% tax is probably more than CC interest.

psychocandy
9th September 2011, 08:26
The way I look at it is if I have money in the bank earning 1% interest and a credit card costing me 10 or 20% then I'm better to pay off the credit card. Why pay interest on a credit card debt if you could pay it off? That is presuming you could borrow the money back if you needed it.

My golden rule is to never spend money on a credit card if I don't have enough cash to pay it back when I get the statement.

Yes, of course this is true. But if you suddenly find yourself on the bench, the money in the bank account is available but the money paid off the credit card has gone.

Of course, you could just stick more on the credit card but then it'd be at normal rate not low balance transfer rate.

psychocandy
9th September 2011, 08:32
Start a spreadsheet.

Enter your savings, Corp tax, vat, debts, credit cards, loans etc and then work out where you'll be in
any month based on ingoing/outgoings etc. Then you can you can
implement things like credit card balance xfers and when Corp or vat is paid to best plan out your cash flow. Do that and you'll never find yourself
caught out.

I'm not doing anything dull like spending money allocated for CT or VAT, this is purely profit/dividends taken out of the company/profit left in. I dont think going down that route is particularly clever.

Yes, I have a spreadsheet, and I know where I'll be in x months time IF contract continues till then. Current thinking is maybe I should have a minimum of 6 months of money to pay the bills sorted before I pay too much off credit cards.

lukemg
9th September 2011, 08:54
Are your credit card debts on 0% interest ? If so, leave for now. ALWAYS pay off the debts generating the most interest first/transfer to lower rate as they are bleeding you dry.
You are being cautious at the moment and that will stand you in good stead so don't chuck all the spare cash at low interest debt, leave it in the company (extract up to low rate tax limit of course) or stash somewhere accessible. When you have 6-12 months stashed, start to pay off the outstanding balances, start with the highest interest as discussed.
I can probably survive 3 years but it is astonishing how quick your stash gets burnt through when you turn the incoming money tap off.

rd409
9th September 2011, 09:04
Got some debts from permiedom that I'd like to pay off now that I've got the chance, however, I'm all too aware that you really need to build up savings/warchest for a rainy day when contracting. So with that in mind, we've been trying not to spend too much.

Used my redundancy payment to keep us going for the past few months so haven't touched the contract income yet. I also paid off a higher rate credit card.

Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them. Obviously, the payments mean my monthly outgoings are more (so I need more saved per month to last out any bench time)

Current gig is looking good. Been extended till end of year and looks like it might run and run (yes, I know nothings guaranteed and it could all go t*ts up tomorrow!)

So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?

I guess one consideration is that if you've got too much saved you aint going to be able to claim any JSA during bench time. Not that its much but every little helps.

First thing first. Reduce your spending, and try to pay off your debt. It depends on what scale the debt is. If it is < £1-2K, then I would suggest go straight on, and pay off the debt before stashing the cash for your warchest. So if you have spare £100, it goes to the debt. Once the debt is over, start your savings. It wont take that long. If it is between that and 10K, then you might need a smart approach. Start reducing the loan, but also start saving. So for £100 you save, £40 goes to the warchest and £60 goes towards the debt. If it is more than £10k, then I suggest, you start looking for a permie role, or a contract with longer duration.
I know that a 12 month contract is only worth the notice period, but still, if you are confident about your skills and the client and project seems good, then you should atleast be able to get in the second option without much stress and trouble.

HTH.

d000hg
9th September 2011, 09:07
I think the pay off now or build warchest is a non question. The OP seems to think if he pays off debts now he will then have less to fall on between contracts. However, if you pay off the credit cards with your earnings instead of building a warchest, you can then USE them AS your warchest - the difference being that in the mean time you are paying less interest and overall coming out ahead.

eek
9th September 2011, 10:06
I think the pay off now or build warchest is a non question. The OP seems to think if he pays off debts now he will then have less to fall on between contracts. However, if you pay off the credit cards with your earnings instead of building a warchest, you can then USE them AS your warchest - the difference being that in the mean time you are paying less interest and overall coming out ahead.

There is a risk that credit card companies will cut your limit as you pay the cards off or immediately reduce you limit once you stopping paying off a card in its entirety.

I wouldn't say my advice is based on personal experience but it is based on the experience of someone I know.

psychocandy
9th September 2011, 10:09
Are your credit card debts on 0% interest ? If so, leave for now. ALWAYS pay off the debts generating the most interest first/transfer to lower rate as they are bleeding you dry.
You are being cautious at the moment and that will stand you in good stead so don't chuck all the spare cash at low interest debt, leave it in the company (extract up to low rate tax limit of course) or stash somewhere accessible. When you have 6-12 months stashed, start to pay off the outstanding balances, start with the highest interest as discussed.
I can probably survive 3 years but it is astonishing how quick your stash gets burnt through when you turn the incoming money tap off.

Nah. Gonna leave the 0% as long as.

Some 3.9% gonna leave that. One 6.9% another 7.9%. So not too bad really.

psychocandy
9th September 2011, 10:12
First thing first. Reduce your spending, and try to pay off your debt. It depends on what scale the debt is. If it is < £1-2K, then I would suggest go straight on, and pay off the debt before stashing the cash for your warchest. So if you have spare £100, it goes to the debt. Once the debt is over, start your savings. It wont take that long. If it is between that and 10K, then you might need a smart approach. Start reducing the loan, but also start saving. So for £100 you save, £40 goes to the warchest and £60 goes towards the debt. If it is more than £10k, then I suggest, you start looking for a permie role, or a contract with longer duration.
I know that a 12 month contract is only worth the notice period, but still, if you are confident about your skills and the client and project seems good, then you should atleast be able to get in the second option without much stress and trouble.

HTH.

It should hopefully run for a bit. A few key permies have left and they've got a permie freeze on and are shipping in contractors by the barreload (mainly Bobs mind). After 4 months here I find myself as the longest here for my skillset!

And caught a squint at a project plan the other day and saw my name up until next april.

psychocandy
9th September 2011, 10:15
There is a risk that credit card companies will cut your limit as you pay the cards off or immediately reduce you limit once you stopping paying off a card in its entirety.

I wouldn't say my advice is based on personal experience but it is based on the experience of someone I know.

Cant see that being a problem. The limits on my CCs are scary to say the least so theres plenty of slack there.

However, as someone said, I can just re-use the CCs. Trouble is now their at decent rates so if I paid them off and spent on again it'd be standard rate.

Although, I've had loads of new balance transfer offer letters recently so it might be possible to get new ones if need be. (This went quiet for few years but seems to be coming back into fashion recently.)

doodab
9th September 2011, 10:20
I think the pay off now or build warchest is a non question. The OP seems to think if he pays off debts now he will then have less to fall on between contracts. However, if you pay off the credit cards with your earnings instead of building a warchest, you can then USE them AS your warchest - the difference being that in the mean time you are paying less interest and overall coming out ahead.

Not necessarily. If you have a long term 0% balance transfer deal and have already paid the 3-4% transfer fee then you aren't paying any interest so there is no actual saving to be made, just a slight reduction in outgoings from eliminating the nominal monthly repayment of the debt. In that case it is better to pay the debt down more slowly and grow the warchest as large as possible, because once you pay off that cheap debt it will cost you a premium to borrow the money again should you need to (at the very least another 3-4% transfer fee, plus charges for any cash withdrawals and possibly interest as well).

d000hg
9th September 2011, 10:24
There is a risk that credit card companies will cut your limit as you pay the cards off or immediately reduce you limit once you stopping paying off a card in its entirety. Keep using the card for your grocery shopping and then paying it off. It depends what you count as a decent limit - 5 cards with £5k limits is not difficult.

As for the 0% thing - yes that's a special case.

NorthWestPerm2Contr
9th September 2011, 13:16
There appears to no logic in this thread.

I worked a few months in a Barclaycard call centre many years back (in my student days) and that taught me everything I needed to know about credit cards.

Rule 1:
If you have a brain then you should never pay any interest - I have been in debt for 6 years now and have never paid any interest on a credit card

Rule 2:
If you use credit card for purchases then make sure you always pay that off at the end of the cycle

Rule 3:
If you want to keep debt on a credit card then ALWAYS have it on a 0% Balance transfer deal and make sure it is the best one available at that time i.e. I have a few k of debt on a Virgin Credit Card with 18 months of interest free and I paid a fee of 3% on that.

Rule 4:
If you ever end up in a situation where you are out of work then don't keep debt on a high interest account, simply open a new one and transfer over.

I am saving a warchest up now but I have a credit card on 0% until end of next year - so what's the problem here? I am paying off the debt with minimum payments (1% of balance) and not paying any interest. At the same time I have money being saved up. Result = win win

Main thing to do is avoid paying interest and save that money you would otherwise be paying. At the end of the term you then have the option to save/invest that money or pay off the debt without losing anything

psychocandy
9th September 2011, 14:22
There appears to no logic in this thread.

I worked a few months in a Barclaycard call centre many years back (in my student days) and that taught me everything I needed to know about credit cards.

Rule 1:
If you have a brain then you should never pay any interest - I have been in debt for 6 years now and have never paid any interest on a credit card

Rule 2:
If you use credit card for purchases then make sure you always pay that off at the end of the cycle

Rule 3:
If you want to keep debt on a credit card then ALWAYS have it on a 0% Balance transfer deal and make sure it is the best one available at that time i.e. I have a few k of debt on a Virgin Credit Card with 18 months of interest free and I paid a fee of 3% on that.

Rule 4:
If you ever end up in a situation where you are out of work then don't keep debt on a high interest account, simply open a new one and transfer over.

I am saving a warchest up now but I have a credit card on 0% until end of next year - so what's the problem here? I am paying off the debt with minimum payments (1% of balance) and not paying any interest. At the same time I have money being saved up. Result = win win

Main thing to do is avoid paying interest and save that money you would otherwise be paying. At the end of the term you then have the option to save/invest that money or pay off the debt without losing anything

Yes true but with 0% they're not forever. I know its getting better recently but they were scarce a few years back too.

And of course every time you switch to a new one its 3% or so (MBNA charge 5%) on top....

I've got a decent lifetime of balance with M&S for 2.9% so I think thats much better.

psychocandy
9th September 2011, 14:23
Keep using the card for your grocery shopping and then paying it off. It depends what you count as a decent limit - 5 cards with £5k limits is not difficult.

As for the 0% thing - yes that's a special case.

Im knocking on a bit now mind and some of the cards like my amex Ive had for years and years. Had back in the day when they used to throw money at you.

I added them up the other day and I think it came to over £100K of available credit. Scary.

MarillionFan
9th September 2011, 19:26
There appears to no logic in this thread.

I worked a few months in a Barclaycard call centre many years back (in my student days) and that taught me everything I needed to know about credit cards.

Rule 1:
If you have a brain then you should never pay any interest - I have been in debt for 6 years now and have never paid any interest on a credit card

Rule 2:
If you use credit card for purchases then make sure you always pay that off at the end of the cycle

Rule 3:
If you want to keep debt on a credit card then ALWAYS have it on a 0% Balance transfer deal and make sure it is the best one available at that time i.e. I have a few k of debt on a Virgin Credit Card with 18 months of interest free and I paid a fee of 3% on that.

Rule 4:
If you ever end up in a situation where you are out of work then don't keep debt on a high interest account, simply open a new one and transfer over.

I am saving a warchest up now but I have a credit card on 0% until end of next year - so what's the problem here? I am paying off the debt with minimum payments (1% of balance) and not paying any interest. At the same time I have money being saved up. Result = win win

Main thing to do is avoid paying interest and save that money you would otherwise be paying. At the end of the term you then have the option to save/invest that money or pay off the debt without losing anything

Absolutely spot on thread. You pay everything on credit card. Every little thing.

I've had an average balance of around £30,000 per year owed to credit cards for the last 13/14 years ever since I started contracting. In the past balance transfers at 0% were free. During the credit crunch they disapeared and for about a year I reduced them. At one point I paid them all off because the cost of the transfer 3% for six months was a waste of time. Most I've owed has been £50000.

Now they're offering 2.5/2.9% for 18 - 22 months.

During the early years I used the £30k in my offset balance. Now I have it in a 5.05 savings bond. Including cash back in 13/14 years I estimate I've made about £18000 - £22000 on credit cards.

That's how you build a warchest.

NorthWestPerm2Contr
10th September 2011, 09:14
One thing I forgot to mention was to close any unused credit cards down immediately, that way you can open it up again in 12 months. I just keep rotating amongst the best credit cards paying an average of 2% Per year. Really not bothered about that debt anymore as it is setup on direct debit. Just make sure you restrict your debt to 1 or at most 2 credit cards.

northernladuk
10th September 2011, 09:24
useful stuff

Thats a nice post. I also used the 0% interest with a vengence when it was free. Bought two houses using the credit. Had to knuckle down and pay it off when the charges started but had some good deals so was happy to use it. Nowadays I stay away if I can. 3% is peanuts but more peanuts than nothing.

Just bringing this back to OP's post. I fully agree with never using a credit card if you can help it but one of the main ways out of debt... whatever kind of debt you have... is to have a blanced and manageable income. People get in to debt when their costs fluctuate and income changes. In Psycho's case by not building up a warchest and being sensible with paying it off she could get in to the case where she has no income and has to go back to this debt so defeating the object and potentially having to pay the 3% charge again or whatever the circumstance.

A balanced approach where every penny is accounted for and you have a steady flow is much better for debt contol than banging it all in to one area then struggling in the other IMO.