Approach to warchest building up

[psychocandy]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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).