What happens when you pay off all your debts?

bramble1

What about the whole credit rating thing....can someone elaborate on that please?

anh1904

Credit ratings are temporary, but not having any credit, amazingly, makes it harder to get any. Not that you should ever want to if you have visited some of the dark places I wager a number of us on here have visited in the past.

bramble1

JimmyTheWig wrote: »

The cycle doesn't have to start again, because...

What happens when you become debt-free? You have no more debts to pay!!
That means that the money you are currently using to repay your debts will be yours to do with what you like.
That, I would have thought, would have to be the biggest motivation.
If that's doesn't sound like motivation enough, post what you currently owe, what interest rate and how much you are paying each month and I'll see what I can do with the figures.

It's a motivation - i'm trying to work out if it's best to keep ticking over with debt repayments and saving any extra money toward a house desposit or if there is any point in putting any spare money toward debt repayments and then saving for property AFTER the debt is repaid. I.E how long do i have to wait before someone would even consider me for a mortgage - if it's years AFTER i've paid off my debts am i not better off just paying of my debts and putting spare cash into getting a bigger deposit together os that my credit rating matters less?

bramble1

anh1904 wrote: »

Credit ratings are temporary, but not having any credit, amazingly, makes it harder to get any. Not that you should ever want to if you have visited some of the dark places I wager a number of us on here have visited in the past.

But i still need a good rating to get a mortgage....

JimmyTheWig

bramble1 wrote: »

It's a motivation - i'm trying to work out if it's best to keep ticking over with debt repayments and saving any extra money toward a house desposit or if there is any point in putting any spare money toward debt repayments and then saving for property AFTER the debt is repaid. I.E how long do i have to wait before someone would even consider me for a mortgage - if it's years AFTER i've paid off my debts am i not better off just paying of my debts and putting spare cash into getting a bigger deposit together os that my credit rating matters less?

Ok, lets make up some figures.
Lets say you owe £10,000 at 20% interest. This will take you 2 years at £500 a month.
Lets say you have this £500 a month to pay off the debts, but no more spare each month.

You are considering dropping your repayments to, say, £360 a month in order to put £140 a month into savings.
This will make you debt free in 3 years rather than 2 years.
At the end of those 3 years you will have made 36 lots of £140 payments into savings, giving you a balance of around £5267 (inc. interest at 3%).

If you stick with your current plan, however, you will be debt-free in 2 years with no savings. You can then put the full £500 a month into savings. At the end of 3 years, then, (which is the timescale we are comparing to), 12 lots of £500 would give you a savings balance of £6090.

So you are better off repaying your debts first, then concentrating on your savings balance.

moocowone

Debt is a a) burden that costs you money every month and b) is a potential risk that makes you less financially secure in the long run.

My main reason for paying it off is so that I have more money!

My debts are credit cards:
£2000 @ 20% (hoping to finish paying this one off at the end of this month )
£4000 @ 18%
£3000 @ 6%

I reckon I can pay off the minimum payments + £400/month. The minimum payments alone are about about £150-200 a month. So, when I've paid them off, I'll be £200 a month better off, and I won't owe the bank £9k. Who wouldn't want that!?

Seriously... When I think about it.. I owe the bank NINE THOUSAND POUNDS. Christ. I've had my "light bulb moment" and I'm sorting it out now.

bramble1

JimmyTheWig wrote: »

Ok, lets make up some figures.
Lets say you owe £10,000 at 20% interest. This will take you 2 years at £500 a month.
Lets say you have this £500 a month to pay off the debts, but no more spare each month.

You are considering dropping your repayments to, say, £360 a month in order to put £140 a month into savings.
This will make you debt free in 3 years rather than 2 years.
At the end of those 3 years you will have made 36 lots of £140 payments into savings, giving you a balance of around £5267 (inc. interest at 3%).

If you stick with your current plan, however, you will be debt-free in 2 years with no savings. You can then put the full £500 a month into savings. At the end of 3 years, then, (which is the timescale we are comparing to), 12 lots of £500 would give you a savings balance of £6090.

So you are better off repaying your debts first, then concentrating on your savings balance.

Thanks - I don't pay any interest on my repayment plans and i'm not going to drop the payments at all - i just don't know if it's worth pouring all my money into the repayments and having no savings (yes, and no debts,but still no savings) at the end of it all.

Also still confused on the whole credit thing...mine really really really bad. So do i have no hope of ever getting a mortgage? If so, then i lose enthusiam for paying off my debt early as i will never get to my goal.

moocowone

you don't pay interest? How much do you owe? is it credit cards/loans/what? How much are you repaying?

If you've genuinely got a 0% interest forever deal, there's no reason to pay it back that i can see. But I don't know how you'd have got such a deal in the first place. If you're on token payment and interest freeze, then I don't see how you could get a mortgage?

bramble1

Im on repayment plan with debt agenices...hence the question what happens when it's all done and finished? I know i won't get a mortgage whilst on the plan - but if i'm NEVER going to be able to get one then I don't see the point in working hard to pay things off as early as possible and I won't be able to achieve my end goal and may aswell focus on other things.

moocowone

In that case I think your aim has to be stick to the repayment plans for a while so you can build up a track record and look to get the debt refinanced, if not get it all paid off completely. When it's been refinanced or paid off, you can start to get your credit rating back on track.

The 'black marks' on your credit rating will expire after 6 years, but you'll be able to start repairing your credit rating before then.

It sounds as though getting a mortgage is a very specific and, quite probably, distant objective. Is it a good idea to focus on this now? You can have a home without a mortgage and, in any case, paying off your debts will start to benefit you long before it comes to getting a mortgage.

I'm not sure whether the problem is that you just don't see a way through these debts? It's hard to comment without knowing more specific details (and even then, I wouldn't be able to give you any definitive answers).