Overpay on mortgage or credit card?

onthevergeofameltdown

Hi everyone a genuine question of which i thought i knew the answer to.
This month will be hopefully one of many where i will have a little left over to overpay.
my situation is this, mortgage 99k over 19 years on a base rate plus 0.5
i also have 4000 on a credit card interest free with 15mth remaining.
Now i always thought pay off my card and then start on my mortgage, but with the interest rates going up soon is it better to start overpaying my mortgage and just keep paying around £100 a month to clear my credit card and keep switching to various interest free cards?
I hope you can understand this , and i welcome any responses thankyou.

mbbetter

What you have stumbled upon is affectionately known as stoozing: http://www.stoozing.com/ & http://forums.moneysavingexpert.com/forumdisplay.php?s=&daysprune=&f=95

If you can keep moving the money around and take balance transfer fees into account, you may be better off keeping the 0% card than paying it off. There are calculators to help you do this.

There is some discipline required in terms of payements and transfering the balance. It is less profitable than it used to be (depends what your mortage/savings rate is). It's not something I have done myself, but I regularly consider doing.

Cheers

edit... I have sort of done this, but not with credit cards. We spent around £5k on a kitchen - in the past we would have paid for this in full from savings. However taking the the 0% interest interest they offered us is worth around £120 in interest savings for a year (offset mortgage).

Clearly spending to save is not money saving! But in principle you should pay your highest interest debt first. In my situation owing £165k at 3.5% it seems a bit mad to take £5k of savings to pay off a 0% loan.

ManicMum

what interest rate are you paying on your cards? Unless we see a return to the late 80s with interest rates at 16% or thereabouts, I can not see when it will ever be better to pay off your mortgage first. Always pay the debt at the highest interest rate first.

mbbetter

I think it is a 0% interest card in which case it may (not always) be worth holding off paying it off.

The biggest thing is to factor in any balance transfer fees, which can be up to 3%, clearly wiping out a lot of profit. Also if you forget to jump to a card in time - when the interest jumps, that can kill profit.

Also for some clearing a card means no more temptation to over spend - not saying that about you ontheverge, but it is a consideration for some.

onthevergeofameltdown

my credit card is interest free manic mum for about another 15 mths, that is why i am thinking of overpaying my mortgage. If i havent paid off my card in the 15mth period i can just switch my remaining balance to another credit card with an interest free period.

onthevergeofameltdown

I understand what you are saying Mbb but as i am on my second card having already used the 16mth free interest period with virgin, where i never touched the card and feel i am in a position to do the same again. So i know about switching in time and balance transfer fees. What i am worried about is if my mortgage starts rising and i could have helped in some way to reduce this and didnt.

mbbetter

There are people much more qualified than advise on financial matters than me and will be able to tell you what to do to maximise every penny.

If it was me I would pay off the credit card at minimum payments and stick what you would have paid off the card into a high interest savings account. Then in 16 months you can asses to a. BT the card and keep saving b. Clear the card with the savings c. use the savings to overpay the mortgage.

What I probably wouldn't do is plough the money into the mortgage each month. With the cash in a savings account you have maximum flexibility at the end of the 16 months. Your mortgage rate is very low (for now?) so it probably makes sense to put it into savings now anyway.

Jonbvn

Given that all credit cards have a balance transfer fee of around 3%, it is better to OP the credit card balance.

getmore4less

Mortgage rate 1% (base+0.5%)
CC rate 0% 15 months

savings rate 2.5% (just about anywhere)
Monthly saver even more


SAVE THE MONEY DON'T OVERPAY.

plan for the CC to run out and have enough in saving to pay it off.


If mortgage goes above saving then review ut the savings should track up as well anyway.

Switching with BT's is not that cost effective with the fees, look for purchase cards(slow stooze/transfer using normal spends) and have a plan to be debt free using them.