Pay part of my mortgage or clear my credit card

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Hi Guys
I have about 3 grand spare from an endowment policy and am wondering whether to clear my existing credit card debt or pay off a small portion of my mortgage. I have been tarting for about 3 years now and have managed to get another 9 months interest free on my credit card. I owe about £64000 on my mortgage and about £3500 on my credit card. I also owe about £11000 on unsecured personal loans and am paying about 6% interest on that debt. If I cleared my credit card it would free up about £100 per month which I could use to make additional payments on my mortgage.
This is my first new thread and this is probably a no brainer to some of you but I would welcome any advice.

Conor_3

You have the right idea. Clearing your credit card debt would free up the money to pay off the mortgage. Paying a lump sum off the mortgage just ends it sooner but doesn't free up cash in the short term.

A word of advice. Don't increase the mortgage payments but save the £100 a month and make an annual/bi-annual payment off the capital. Why? If you increase the payments you have to meet them. If you get short one month and can't pay, you get the penalties. By saving the £100 a month instead, if something unforseen comes along, you're not panicking.

If the interest on your mortgage is calculated daily, you may want to change to weekly payments. That'll knock a few years off.

BobProperty

Can i just add to what conor said. If you are going to overpay your mortgage you need to know how the mortgage co calculates the interest and when it's applied. Some building societies still use the old fashioned method of calculating the interest once or twice a year, there may be penalties for small early payments etc. In some cases it's actually better to save the money in an investment account and pay it off once a year.

dinkylou

Are your personal loans on a fixed rate? And are there penalties for early payment?

I agree that you should pay off your credit card first but then if you can make payments to your loans (as they seem to be a higher rate than your mortgage) I would tackle those next.

Maybe save the extra 100 per month in an ISA until you have enough to clear one or more of the loans (hopefully without penalty for early repayment?)

in*the*red_6

I would agree with dinkylou that you'd be best to tackle the rest of your debt before worrying about the mortgage, and if you've got a 9 month 0% interest period - set up the ISA now and pay the 3 grand into it so it's earning interest and then pay off the cc at the end of that.

J_P_S

imo def clear the credit cards first and free up more cash every month.

i didnt realise that about overpaying on your mortgage, that seems good advice though, or could you use it to clear your loan more quickly instead.

Conor_3

J_P_S wrote:

i didnt realise that about overpaying on your mortgage, that seems good advice though, or could you use it to clear your loan more quickly instead.

Got that advice from my mortgage company debt recovery section. No I wasn't in debt to them but the CS Droid at the mortgage company couldn't get her head around the concept of making overpayments (I guess people are trying to reduce them, not increase them) so transferred me to the recovery section. Nice bloke - gives me confidence should I ever end up needing them - and found the fact they transferred me there quite funny.

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Hi
Thanks for some really great advice. I have decided because of your advice to leave the mortgage alone and am now considering paying off part of an unsecured loan I have with Nationwide. I owe about £3700 and I am 18 months in (taken out over 5 years) @ 6%.
I reckon I can afford to pay about £3200 off in one overpayment. I would then be able to clear the loan in about another 5 months. That would then free up about £100 per month. As I have just got another 9 months 0% on BTs I feel that this option would be better than paying off my credit card debt (abt £3400). Are there any pitfalls with this plan??

dinkylou

The only pitfall I can see is when your 0% period ends on your cards in 9 months.

If you can transfer to another 9 months at 0% then you're ok, but if not then you will have that back up at the high rate.

If you clear your loan in 5 months and that leaves you with £100 per month then you could use that towards your cc, but it will take you longer than 9 months to clear that.

If you can tart again then you're fine, if not, deal with CC first then overpay on the loan.

Hope that makes sense.

skintchick

Pay off highest APR first. Always.

For example, I am now overpaying my mortgage rather than my car loan cos the car is 0% LOB and the mortgage is 4.69%, so although getting rid of the loan would free up cash, it doesn't make sense (I don;t need to free up cash, if I did it would be a diffrerent matter but it would only go on the mortgage anyway!)
HTH