What happens when you pay off all your debts?

Student_Mrs

hello. this is probably a silly question answered elsewhere, but these black marks? is it just for those who have entered an official debt repayment plan or is it applicable to me, who also with other half wants a house after paying off debts but defaulted on credit card this year. Does that mean it wouldnt be worth us looking for a mortgage until 2017? (if theoretically debts were cleared and 1 or both had steady full time jobs)?! it would just be good to know if this is the sort of timeframe to have something to work towards, is trying not to default on anything more for 6 yrs :S

76rosie

i am also saving for a deposit with my husband. it's not just paying off debts, it's a lifestyle change. Whilst paying the debts, it's a good idea to be thrifty on all levels. Making other small achievements will take the pressure off. Getting your finances in order will improve your credit rating. It has mine. Just think of it this way, you are getting yourself ready for the right opportunity when it arises and that means saving. Joining freecycle can really take the pressure off when you need to buy something. Getting coupons can really help. Now my credit rating is excellent, i only use my credit card because I can vouchers by using it and I pay back to avoid interest. I am always trying to live on a budget just because it makes sense to keep the money in your pocket.

I'm not perfect or a saint but I do believe that i will buy a flat next year and by the way i don't have a fantastically well paid job. But when things seem tough I think about how i can make matters better e.g get overtime or find things cheaper.:j

bramble1

Thanks for your help guys. I think paying off the debts then if the first thing to work on, the house will just have to wait!

ermine

At the moment it is very hard to make a real return on cash savings, the easiest way is with National Savings index-linked savings certificates. That sort of counts against saving too - save £100 in most savings accounts and this time next year the total plus interest will buy you less than it would have done this year. The same logic favours stringing out your zero-interest debt for as long as possible, but that conflicts with your aim to get a mortgage.

You have to think on the long term what you want out of life. If the priority is a house then paying off the debt is good, because, not to put too fine a point on it, why should a mortgage company lend you money if they see previous lenders haven't got their money back? Would you lend somebody £20 in a pub if you heard a couple of your mates hadn't got their fivers back from that person?

That said, there is a lot to be said for saving a couple of hundred pounds (or more, up to about three months' net earnings given your mortgage ambitions) to an emergency fund so that you can handle one-off hits like a washing machine breakdown without needing to borrow more.

backinbusiness

Taking the pressure off sums it all up for me. Now that I'm debt free a big car bill is annoying, but not a disaster. A holiday can be saved for and enjoyed, not wondering how it'll be paid for afterwards. A treat can be just that, a treat, and not a guilt trip.

Opening the post without anxiety - answering the 'phone without anxiety - using the cash point or debit card without anxiety.

Just wish I'd seen the light (bulb) a little bit earlier!

Best of luck OP - it's worth it.

BiB

bramble1

I think the worst thing is i won't be any better off when i'm debt free and that's what seems quite disheartening, i still won't be able to afford anything over and above what we can now - we still won't be able to afford holidays or going out when ever we feel like it.

But it will be worth it in the long run!

ermine

I think the worst thing is i won't be any better off when i'm debt free

This is incorrect. You will be better off by the amount of money you were paying towards the debt. This may make a significant difference to you, as when income only just exceeds outgoings then any slight reduction in outgoings makes a massive difference in disposable income. The trick then is to save that difference, not spend it!

Imagine income £10k, outgoings £9k + £500 debt servicing. Your disposable income is £500, after the debt is dischared your disposable income is £1000 - twice as much as it was before! I observed this at the beginning of my career, small payrises made a huge difference to my disposable income.

You will also not have the stress associated with the debt! Keep the faith, it will work out in the end.

mdeebee

iolanthe07 wrote: »

I think it starts with Champagne, and some self pampering

So the cycle starts again..........

Surely the achievment of being debt free deserves a little bit of celebration? Crikey!

ermine

Surely the achievment of being debt free deserves a little bit of celebration?

Although a bottle of champers might be okay, as a matter of interest, why is this so worth you celebrating by spending more money 'because you're worth it'?

Would you as a dieter celebrate attaining your target wieght with a slice of Black Forest Gateau?

The reward of being debt free is that your money works for you and only you, rather than for your creditors. Similarly the reward for not overeating is not getting fat...

mdeebee

You are using two different analogies. Champagne is traditionally used in celebration events and is generally not consumed everyday. The symbolism of the achievement of (in some cases on MSE) over quitel long periods of time is what it's all about. Then the lessons learned can continue.

ermine wrote: »

Although a bottle of champers might be okay, as a matter of interest, why is this so worth you celebrating by spending more money 'because you're worth it'?

Would you as a dieter celebrate attaining your target wieght with a slice of Black Forest Gateau?

The reward of being debt free is that your money works for you and only you, rather than for your creditors. Similarly the reward for not overeating is not getting fat...