Advice please

chloe82

I am looking for some advice please....I am due to inherit a sum of money and am in a bit of a quandry as to what to do with it. I currently have some debts (credit cards) and my first thought was to use the money to pay off these debts and I would then be debt free.


However, I currently rent a cottage with my partner of 6 years. We would like to get on the property ladder in the future and buy a property however with the current financial climate you need a rather large deposit to do this of which we only have £4,000 saved so far.


Would my first thought of paying debt off with my money be the best option and then start saving a larger amount each month towards a deposit which I would be able to do as I would have no credit card bills to pay? At the same time this may work better in my favour when applying for a mortgage as I have no other debts.


Also, my friend recently lost her job and had debts on a personal loan and a credit card. She has called the companies which supplied both and offered them a settlement figure to pay in full (which is actually less than the overall balance), both companies accepted and she used some of her redundancy money to pay this debt off. Is this possible for anyone to do when paying debt off and if so does it have an adverse affect on your credit score?


Any advice would be greatly appreciated.

TUS

How much are your debts, what are the APRs, amount left to pay & over how long?
How much have you inherited?
What is your SOA - do you currently have spare each month anyway?

I personally would clear my debts as a priority. That frees up those repayments to plough into savings for your deposit.

chloe82

I currently have £6500 spread across two credit cards which are charging interest. I tried to apply for a 0% card but my application was refused. I always try to pay more than double the minimum repayment in the attempt to at least pay some of the balance off rather than just paying the interest off each month. That is why I thought it best to use the money (approx £7000) to pay off my debts.

If I paid off my debts I would be able to save around £400 per month towards a deposit as I would have that spare each month.

Mikeone

Hi Chloe

Bit of a golden rule around these parts is to always pay off debts first, rather than saving. You'll be paying interest on the cards, which will exceed any interest you will earn on savings. The best thing to do from a financial point of view is to clear the debt. It will also mean that you don't have to worry about them if anything should happen (unexpected job loss etc). It's up to you, but I would definitely get rid of the debt if I was in your position.

With regard to your friend, it is quite common for creditors (or more specifically Debt Collection Agencies) to accept a smaller figure as Full and Final settlement if they think it will take a long time to recoup the full debt. As far as I know, this is all done on an individual basis, and it is recorded on your credit file as 'Partially Satisfied'. More experienced users of these boards will know more.

chloe82

Hi Mike

Thanks so much for your reply, I thought that would be the answer but just wanted to check with people "in the know" and here seemed a good place as there is so much information and good advice on these forums.

TUC thanks to you also, I am looking forward to being debt free and then turning my focus to saving a deposit.

Thanks again to you both

KingElvis

Yeah, pay of the debts and start saving.

Don't make the lethal mistake of paying off the debts with the lumpsum and then running them back up again. Be tough, focused and dump the cards or use them ONLY to keep your credit rating turning over for when you apply for your own house.

chloe82

Thank you all for your advice. I no longer have the credit cards, I cut them up a long time ago and have really learnt my lesson with how lethal credit cards can be.

I know this may sound like a strange question but will having some debt i.e a credit card go in my favour when applying for a mortgage? Apologies for all the questions but I don't know much about how the mortgage application process works

KingElvis

Active, up to date and SATISFACTORY debts are all ftw when you apply for credit.

As long as you are "within" your means. Huge debts, even if you are maintaining them are never good when it come to getting more debt.....

That's the way it seems to me.