Pay off credit card or overpay mortgage?

rharwin

Just a little query that really illustrates my indecisiveness.

I currently have £2600 on my barclaycard platinum and am on 0% rate for the next 6 months.

In addition I am currently on nationwide's SVR of 2.5%.

I have around £800 per month to use on either paying off credit card, overpaying mortgage or maybe a bit off both.

What should I do?

Any suggestions would be most appreciated.

Kind Regards

opinions4u

1) Put the money in to the AA savings account at 2.8% until you have £2,600.

2) Open a Santander 3.2% ISA with £1 before they pull the offer. *edit see post 3 below.

3) Once you have passed £2,600 in the AA, top up the ISA.

4) Repay the card with the £2,600 in the AA in 6 months time.

5) After the 6 months is up pay your £800 a month in to the ISA until you have maxed out or the mortgage rate rises above the ISA rate. Consider monthly savings accounts (e.g. Principality) for any funds over and above the ISA limit.

6) Remember, if there are two of you then you can have one cash ISA each.

The basic rule: If you can get more in savings (after tax) than you pay on your debt, then why pay off debt?

getmore4less

Slight variations, £2600/£800 3.25

Put the first 2 £800 into the ISA then depending on exact timing collect £2600 from the next 4 to tackle the CC when the 0% runs out.

Cannon_Fodder

Totally agree with the basics of the maths in the suggestions. Just wondered if it needs to be looked at in a wider context?


1) Is there a benefit in earlier disposal of the CC debt ?

i.e. in case they want to remortgage, and that £2.6k sitting on their credit history influences affordability, amount borrowable or some such, for the re-mortgage ? Being on SVR now, presumably means their deal was pre-crunch, so we don't know if they will get approved under new criteria.

A rushed re-mortgage might mean they decide to throw their savings into the LTV, resulting in CC debt either incurring interest or having to pay a balance transfer fee, which negates the gains.


2) Or should the overpaying take precedence ?

i.e. If there are monthly/annual limits on overpaying, depending on the way they work, gradual ongoing overpaying may be more effective than saving for a single lump - for example, if not sure when re-mortgage might be sought.

They appear to be around 90% - if this could be improved to 85%, the improvement in deal on an amount of £180k, could be preferable to the small debt getting a BT fee ? http://forums.moneysavingexpert.com/showthread.html?t=2247275&highlight


3) "until you have maxed out or the mortgage rate rises above the ISA rate"

i.e. If the 2.5% SVR moves above 3.2%, then its going to be too late to bag a decent Fixed deal (if that's the OP's preference). 6 months of saving against a £2.6k amount is never going to recoup the loss of their £180k mortgage being 0.5%, 1% or whatever higher for X years...


Same old problem about guessing when rates might move, of course.

ukclarkkent

opinions4u wrote: »

1) Put the money in to the AA savings account at 2.8% until you have £2,600.

2) Open a Santander 3.2% ISA with £1 before they pull the offer.

3) Once you have passed £2,600 in the AA, top up the ISA.

4) Repay the card with the £2,600 in the AA in 6 months time.

5) After the 6 months is up pay your £800 a month in to the ISA until you have maxed out or the mortgage rate rises above the ISA rate. Consider monthly savings accounts (e.g. Principality) for any funds over and above the ISA limit.

6) Remember, if there are two of you then you can have one cash ISA each.

The basic rule: If you can get more in savings (after tax) than you pay on your debt, then why pay off debt?

what's this bit about saving with aa before an isa? am i missing something really obvious here? i'm mid-application for the santander isa so would like to know more about the aa(just closed my ingdirect acct which was about 2.7% until this week).

thanks in advance, me.

opinions4u

ukclarkkent wrote: »

what's this bit about saving with aa before an isa? am i missing something really obvious here? i'm mid-application for the santander isa so would like to know more about the aa(just closed my ingdirect acct which was about 2.7% until this week).

I made a point of thanking the post after mine, which actually adjusted the order more appropriately.

I was trying to ensure the OP didn't waste part of the ISA allowance on £2,600 that would then be withdrawn. My second point was to ensure the Santander ISA rate/guarantees were obtained now by opening it with £1.

But point taken.

ukclarkkent

opinions4u wrote: »

I made a point of thanking the post after mine, which actually adjusted the order more appropriately.

I was trying to ensure the OP didn't waste part of the ISA allowance on £2,600 that would then be withdrawn. My second point was to ensure the Santander ISA rate/guarantees were obtained now by opening it with £1.

But point taken.

hiya,

sorry i wasn't trying to make any point at all. maybe i wasn't clear. i was genuinely asking about saving in aa rather than an isa is all.

thanks for replying though.

now that the the limit has been raised on isas i will never get a full one so i plan to use it as a normal savings account. is that what you're talking about?

sorry if i wasn't clear. cheers!

getmore4less

If your savings are lower so that the total would not exceed the allowance any way it does make sense to use the ISA and withdraw when required.

The OP was saving £800pm so would exceed 1 allowance but not 2 so could use just the ISA if they don't antisipate more money in the year and can access 2 ISAs