Clear credit card or overpay mortgage while rates are low?

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I can't get my head around which is the more sensible option at the moment. I was very lucky in re-mortgaging to one of the last remaining trackers last month, leaving me on rate of 3.64% The progressive interest rate drops over the last 8 months have seen my mortgage payment drop by ~£250, which I now wish to use to the very best effect, while it lasts.

I have a credit card debt of just over £2000 at 8.9%, to which I have been directing that £250 each month, but I'm now starting to wonder whether I'd better off overpaying it off the mortgage while the rates are low, and just maintaining the minimum payment on the CC instead.

Let's say that's approx 8 months' payments to clear the credit card. I'd be annoyed to pay right through that to find that just as I could afford to put it on the mortgage again, the base rate comes back up. Any suggestions would be greatly appreciated..?
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  • YorkshireBoy
    YorkshireBoy Posts: 31,541 Forumite
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    You should make additional payments on the most expensive debt, ie the card.
  • shiggsy
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    Thanks. That's what my head is telling me, but LTV is the flavour of the month at the moment, so I wonder whether it's better to protect and reduce that, while I have the ability to. The credit card interest rate is unlikely to change much, and I can easily move that debt around. The rate is higher, but we're talking about 8.9% on £2k or 3.64% on £110k !
  • YorkshireBoy
    YorkshireBoy Posts: 31,541 Forumite
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    shiggsy wrote: »
    ...LTV is the flavour of the month at the moment...
    But you only re-mortgaged "last month", so presumably have no urgent need to re-mortgage again anytime soon?
    The credit card interest rate is unlikely to change much
    I wouldn't bank on that in the current climate.
    The rate is higher, but we're talking about 8.9% on £2k or 3.64% on £110k !
    In the context of the above, the amounts are irrelevant. It's the rates that matter.

    My stance hasn't changed...pay down the credit card debt. :)
  • NickX
    NickX Posts: 3,046 Forumite
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    How about getting a 0% Balance Transfer card, move the debt from the existing card over to that, pay the Minimum, then overpay the mortgage for the term of the 0% promotion ?
  • latecomer
    latecomer Posts: 4,321 Forumite
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    I'm with NickX, shift the credit card debt to a 0% rate if you can and then fire everything apart from the minimum payments at the mortgage.
  • firesidemaid
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    0% card - meanwhile or if you don't get one (remember you have just applied for credit in the form of a mortgage) overpay on the credit card.

    each £250 paid off the c/card saves you £22.25 per year, but you will only save £9.10 (less than half) by paying it off the mortgage.

    even if you didn't have the c/card it would be better to save the money in an isa until you need to pay off the mortgage - it would earn/save you more and would be there ready to reduce the ltv whenever you need it.
  • latecomer
    latecomer Posts: 4,321 Forumite
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    I'm not sure the calculation is that straight forward as overpayments on the mortgage will have the effect of reducing the future interest over the remaining term. I'm sure there is a comparison tool somewhere to figure it out.
  • shiggsy
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    even if you didn't have the c/card it would be better to save the money in an isa until you need to pay off the mortgage - it would earn/save you more and would be there ready to reduce the ltv whenever you need it.

    Thanks - that's a very good point to consider once I've sorted out the credit card.

    Also, yes, the fact that I have just remortgaged (3 year incentive period) suggests that LTV should not be so important to me. I was concerned though that 3 years will come around very quickly, and if these low interest rates only hold out for 6 months, I'm going to lose the chance to reduce my loan to value - I should have mentioned much earlier it's an IO mortgage!
  • TrickyDicky
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    Any debt has the same compounding interest problems. So whether its a mortgage or a credit card, paying off the largest interest rate first is ALWAYS preferable.

    If you neglect the credit card you'll just end up compounding interest at 8.9% rather than the 3.64% on the mortgage.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
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    The answer is, as has been said, to pay the money off your credit card.

    At 3.64% you have got a terribly good interest rate on your mortgage. No way would I be wanting to pay any more off that than I had to.

    Pay the credit card off. Then put money into an ISA.
    You can then use your ISA to lower your LTV when it comes to remortgage time.
    If you leave the credit card debt in place for three years you will pay a lot of interest (even though that, in itself, is at a good rate) on that debt over that time. Also, a mortgage company may look at that credit card debt and decide they don't want you.

    Hopefully you can pay off your credit card before rates increase at all. Then when they do increase they shouldn't go straight back up to what they were, so you should still have time to put money in your ISA.
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