What should I do?

*jobags*

The basic situation is

Mortgage 267,000 outstanding at 5.19 (fixed) payments £1360 monthly
Debts £40,000 - credit cards and ZOPA - average APR 8%

Income after tax £4000 monthly
Snowballing (inc mortgage) £2300 monthly

We have recently started saving for the kids (age 3 3 and 8) £400 monthly at 2.8% and have £2400

Instead of saving that amount should we use it to pay off the debts and then start saving like mad for the kids once debts are paid?

We have no other savings or investments (apart from conts to pensions via work)

In these uncertain economic times when unemployment is a real possibility should we prioritise the mortgage or the unsecured debt?

Obviously I can't ask for advice on here but your suggestions gratefully received as our heads are spinning

bottleofred

Hi jobags,

If you are sure that the employment is secure, I would use some of the savings to pay off the debts and particularly the credit card as the apr is going to be more than the interest on the savings. However, always prioritise the mortgage and essential bills first before unsecured debts, particularly if short of cash.

tallyhoh

Madness to save money while you have debts, just compare the interest rates. You are right in thinking to pay off debts first & THEN save.

GeorgeUK

Definately get rid of the debts before saving. There's no problem in retaining a cushion, but the focus should be on clearing the debt.

Try comparing how long it would take to pay off the debts using the snowball calculator (exculding the mortgage). Do one at the current payment levels and one using the extra money you are putting into savings right now. How much less time will you be in debt?

Compare that length of time against how much you would have saved for the kids compared to if you continue to make payments at the same level, but into savings after all the debts are dealt with. You will be saving thousands.

I would deal with the unsecured debt as a priority before the mortgage. There wil be some security in the mortgage and you may find ways of paying down the mortgage faster without other debts to get in the way.

wherediditallgothen

I don't agree with 'pay off debts then save' as a hard and fast rule. What if the boiler breaks? What if the car needs a fair bit of work? Are you going to have cushion to pay with if these do happen or are you going to use credit? (which is what got most people here into trouble in the first place). If you feel that £2400 would be needed due to unemployment or anything like that then it may be best to keep it aside.

Saving after you have built up enough for a rainy day is silly though when you have debt. Always prioritise the mortgage over everything else though.

GeorgieFTB

I personally keep 3 months take home pay in an instant access ISA, this means I have enough cash to pay for the boiler if it breaks, or 3 months to find a new job if I get sacked/or have a hissy fit and walk out, neither of which has ever happened but just in case. I don't have any other debt than my mortgage but when I did I made sure I had enough available credit to cover myself. I didn't default so could borrow back up to my limits if I needed to, didn't ever have to thankfully as that would have been depressing!

You need access to emergency funds in some form or other then I think you need to get rid of debts, I'm now just trying to get rid of my mortgage but that will be a long road!

*jobags*

Thanks all
I suppose the issue is the job - I am being interviewed at the end of the month for my job - I was thinking if I don't get my job (unlikely but anything is possible at the moment) then I would go on a DMP and go down to paying the minimum off my unsecured debts but my understanding of Govt assistance with the mortgage is that it's minimal - especially in the first 9 months AND if the mortgage is over £200K.

I suppose the sensible thing is to wait until end of the month and if I do get to keep my job then put the savings against the unsecured debt.
The problem is also that the future looks pretty bleak for the kids - I expect the only future for them lies overseas, perhaps I would be wiser the invest some of the money I am putting into savings for them into learning to speak Chinese
Jo