Mrs Bell

Lorraine_Bell

I will be coming into some money from the sale of a deceased relatives house and would like advise on the best way to use this money.
My husband and I have loans and credit cards totalling about £30,000, which we always are able to pay each month but amount to a large sum. We also have a mortgage of £104,000 - £57,000 of which is an endowment mortgage with no endowment insurance cover, owing to the fact that the endowment company told us we had a shortfall of £12,000 and therefore cancelled the cover. Should we pay a lump sum of this mortgage or pay the credit cards/loans of?

NixNoo

Mrs Nixnoo will be in a similar situation soon (if the house ever sells) so I'd be interested in this one too. We have been advised to pay off our mortgage. Our credit cards are not so high as Mrs Bell's and we are tarts so don't pay any interest - that's what I'd advise, keep tarting and paying 0% if poss and pay off your mortgage but I'm NO expert - any other thoughts?

newfoundglory

You should aim to pay off the debt which attracts the highest interest rates first. Credit cards and unsecured loans are almost always going to have higher interest rates than a mortgage, and if you have any of those you should check the interest rates and pay them off first and ASAP if they are higher.

However, £30,000 is an awful lot to tart at 0% with. If you are feeling adventurous, maybe pay a majority of it off and tart the rest at 0%, using the remainder for the mortgage.

If you have no expensive unsecured debts, then you could reduce the mortgage. You would also ideally make provisions in case you lose your job (saving in cash up to 3 to 6 months worth of wages just in case, think ISAs, instant-access savings).

This could be done in a number of ways.

You could simply pay into the mortgage to reduce the amount owed. Different mortgages have different rules about over-paying, or clearing it completely. You should look into the T&C's behind yours, because it might be quite expensive in some cases to do this.

You might be able to pay off expensive debts such as credit cards, by adding them to your mortgage at the same rate as your mortgage.

Offsetting is one possibility, but you might have to move mortages to do this. Would allow you to keep the money in an account paying no interest, but you wouldn't pay interest on the same amount of your mortage. This would allow you to keep easy access to some cash, but reduce monthly interest payments. You might use these reduce payments this as a way of using the extra amount you usually pay to reduce the amount owed.

micheleen

Of course if you do pay off credit cards, don't start running them up again

Tim_L

I think that if you've got into 30 grands worth of credit card debt you shouldn't go anywhere near tarting, as it would appear you don't have the financial discipline. You'd probably just get into more trouble.

Use the windfall to pay off the credit cards and treat it as a once in a lifetime chance to wipe the slate clean on your spending. Then look very carefully at what you were spending on and reduce expenditure to something more within your means. Even if you were coping with the payments, it's an extremely expensive way of borrowing money.

You can use what's left either to reduce your mortgage or to invest to return (hopefully) more than the mortgage rate. See an IFA.

I'm not clear what you've done with your endowment policy, which is much more than simple life cover, i.e. it has a value as an investment. If you've just stopped paying it, then it will lapse and you will lose even the surrender value (though you can often get more by selling it, in which case you retain the life cover. This would be a very costly mistake.

elvis_bloggs

Lorraine_Bell wrote:

I will be coming into some money from the sale of a deceased relatives house and would like advise on the best way to use this money.

Ding dong.....