Is a pension really worth it while trying to clear £15k credit card debt?

[asuheel24]

EDIT 2 (1/11) - Sincere thanks to everyone who’s taken the time to educate me and provide valuable advice! I’ve decided to stick with my pension and chuck the entire inheritance towards my debts

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So I (24F) have found myself with about £15k credit card debt - I’m well aware of how silly this is so no need to go into that please.

I’m on a debt-clearing journey, but with my current debt levels and income, my disposal income ends up being low.

All I ever hear is how good and important pensions are and how you should never opt out, and I absolutely do appreciate their value, but giving up £131 of my take-home every month when I’m already scraping by and being eaten up by CC interest feels really silly to me??? I even had a financial adviser tell me to keep my pension, but it just doesn’t make sense to me? Especially considering I’m still young, it makes sense to me to put off a pension for a while until I’ve brought down my debts.

Is there something I’m missing?

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EDIT 1 (30/10)

Ok let me provide some further info to give a better idea. Apologies for the formatting, I’m on mobile.

EXPENSES
1. Take home w/o pension: £2554
2. Take home w/ pension: £2420
3. Rent & bills: £1200 (yeah it sucks but not one that can be changed atm)
4. Monthly loan payment: £72
5. Monthly commuting: ~£100
6. Monthly groceries: ~£150
7. Monthly prescriptions: £20
8. Total monthly minimum CC payments: ~£800-1000

DEBTS
1. CC1: £7,575 - 31% APR
2. CC2: £1,147 - 32.60% APR
3. CC3: £761 - 30.1% APR
4. CC4: £2,618 - 15% APR
5. CC5: £890 - 25.3% APR
6. CC6: £792 - 32.70%
7. CC7: £900 at 0% for 9 months; £50 at 30% APR
**I am not eligible for any balance transfer or debt consolidation loans at the minute

MY PLAN
First of all, I’m getting help for my spending issues and have been educating myself on my finances to avoid ending up in this situation again.

Secondly, I’ve kind of suddenly come into an inheritance of about £7000. I’m debating between:

1. Putting the full amount towards CC1; or
2. Putting £500-1000 towards an emergency fund in a 5% AER current account (I currently have no emergency fund or cash savings), paying off CC6 in full, and putting the rest towards CC1

In any case, being able to bring down my debts so much will make my monthly payments much more manageable, help me clear the rest of my debts quicker, and improve my credit rating - hopefully eventually making me eligible for a 0% BT for at least some of my remaining debts.

I’m also expecting my salary to increase at the turn of the year, and I’m not expecting my living expenses to increase further.

With all this in mind, my thinking would be to opt out of my pension for a maximum of 6-12 months.

 

[bluecomet]

@asuheel24 In addition to the other advice here you may be able to save a small amount on your prescriptions by getting a NHS Prescription Prepayment Certificate which costs £111.60 for 12 months and includes all your prescriptions.

 

[asuheel24]

@bluecomet I can't believe I hadn't heard of this, thank you!

 

[claysmithr]

@asuheel24 In that case I think you need to subscribe to the Martin Lewis money saving expert emails. His team provide some excellent advice on all areas of finance.

 

[rubychrist]

@asuheel24 Essentially switching to this would cover your pension contribution for the year.

£20 a month is £240 a year
£111.60 annually saves you 128.40
Which means you’re paying £2.60 to have your pension now

(If I’ve done that right)

 

[ryanjrhodes]

@rubychrist I read it as £135 per month, not per year.

 

[michaelrot]

@ryanjrhodes It's per year

 

[erah]

@michaelrot No it's not, it's 135 a month. It says in the OP.

 

[michaelrot]

@erah Completely misread your post, apologies. My fault for skim-reading. You're correct.

 

[ojusvee06]

@rubychrist No idea why this is being upvoted, it would only cover a month's pension contributions.

 

[teeners]

@bluecomet Spot on. Every little counts.

 

[jeanasmall]

@bluecomet That’s what I was coming on here to say, it adds up quickly

 

[stefby]

@bluecomet Holy shit thank you.

 

[therese1234]

@asuheel24 Good context - useful extra info. I'd recommend:

1. Use the £7 inheritance to pay off CC2 and CC6 (as they're the highest rate) and most of CC1 (as it's the second highest rate).
2. Buy an annual pre-payment prescription card for £111 with some of the inheritance (see below).
3. Then get a zero-percent card for about £5-6k, and move all of the other card balances onto it. Cut the card up immediately.
4. Then get a payment plan together to pay off the debt with a standing order every month.
5. Don't bother with setting up an emergency fund - there's no point trying to save while you have expensive debt, and if you have an emergency, you can use debt. As somebody in another thread said: "Better to have no debt now and debt if you have an emergency, than debt now with no emergency"

You say you're not eligible for consolidation or balance transfer cards at the moment, but that might change once you've cleared the main one. Perhaps go talk to StepChange or one of the other debt-help orgs, or the CAB, and see if they can help you organise a consolidation, as that'll massively reduce stress and help you manage the repayment much more easily - and will potentially cut your interest.

As for the original pension question - given your outgoings and general situation, the £150 isn't going to be life-changing right now. So keep the money going into the pension, and know your future self will thank you. Plus as a higher-rate taxpayer, you're going to be getting a decent contribution from the taxman as well as your employer.

Make sure you do a money makeover (https://www.moneysavingexpert.com/family/money-help/) and check there's no other spending you can save on. For example, you're spending £20pcm on prescriptions - if you get an annual prepayment card you can get unlimited presciptions for a max cost of £111 - so that's about £100 a year less than you're paying right now. Also, check your phone contract - if it's more than a tenner a month, ditch it. Eg., I have a lebara SIM which costs me £6.95 a month, with loads of data and unlimited calls/texts.

There may be a lot of 'fat' you can cut without feeling too much pain - but you're moving in the right direction, so well done.

 

[asuheel24]

@therese1234 Thank you so much, really really helpful! Greatly appreciate you taking the time

 

[amber_yohan]

@asuheel24 You can guarantee the moment you pay off a couple of those debts - they will start offering you 0 percent / lower deals …. They won’t help you when you need it but the moment you close a card they’ll want you to shift the debt

 

[therese1234]

@asuheel24 Good luck!

 

[debbieh]

@asuheel24 I've 'sorted' my debts and my husbands and inlaws and have max crefit rating now. I can tell you all this advice is gold! I work in fonance... yes even we can get it wrong especially when married to an irresponsible spender (now ex).
When getting a mortgage our financial advisor told us banks etc look at debt not savings, so getting debts down is always the priority.
Secondly, always keep your pension going. You're getting free money from your employer! I didn't have one till my fourties (abusive ex... always enough in the kitty for his pension though) and every pay rise now is going into it so I have something for when I retire.
You're doing so well and honestly, those debts will start coming down fast once you've paid half almost of it off. Keep going.

 

[asuheel24]

@debbieh Thank you so much kind stranger!! And congratulations on all your wins, wishing you the best

 

[psiolence_music]

@therese1234 This is the best advice on this thread.