Should we use our savings to pay off our debts?

Q I hope you can help with this dilemma. My husband lost his job last week and now wants me to cash in my long-term savings plan to pay off all credit card debts and refinance our car.

He wants to go to tech school and charge the fees for school. I want him to get his degree but am not ready to pay off credit card debt and charge it back up again. I think this is a bad move. Your advice would be appreciated!

BN

A It does sound like a bad move, and there are a couple of things you and your husband need to establish first before you make any hasty financial decisions.

Has your husband got any form of monetary pay-off or redundancy as a result of him losing his job? If so, he could use that lump sum to pay off any outstanding credit card debt.

Secondly, although he is thinking of going back to school to get a degree, it doesn't sound as though he has sat down and budgeted for it properly. How many years will he be studying, and how soon after he graduates will he be able to get a new job? Making a career change is often a very positive step, but he may not need to retrain.

David Thomas, chief executive of CRAC, the Careers Research and Advisory Centre has this advice: "Once you've decided on a career change, don't rush into retraining - you may not need it. When people think about retraining, they often think about very specific and narrow skills, whereas your own personal skill set is much more important.

"First do your preparation and work out your motivations and values, and the set of skills which you have personally developed and which you will take from job to job. Where might you need to develop these? Think carefully about the type of retraining you might do - try to choose an industry where the skills will be in demand long-term. The more specific the training, the greater the danger that it will become quickly outdated."

Your husband may be better taking a part-time job or looking for a new full-time post and then studying in the evenings.

Thirdly, are you able to manage without your car? If so, you could sell it, which would immediately reduce your monthly outgoings. If you are on a hire-purchase agreement, check whether you will have to pay a penalty to pay it off early.

It would be very unwise to raid your long-term savings account to pay off short-term debts like credit card bills or finance retraining. If you are having problems meeting your monthly payments, then write to the card companies explaining what has happened, and asking them to give you more time to pay back your debts. Your priority is to ensure that you don't lose your home.

Your husband is probably feeling confused and concerned right now, after losing his job. You can help him by persuading him to think carefully about what he really wants from the future, and not to rush into retraining or spending your retirement money without thinking things through properly.