What happens when you pay off all your debts?

LovelyLeeds

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...

All a bit churlish and spiteful.

Celebrate with your bottle of champers, and then with the money you were putting towards becoming debt free - buy some premium bonds with it. Good luck.

loveGSDs

op - u will be better off after the debts are gone! ok it may be a while before your credit rating improves, but work out how much you are paying each month on debts - then see how much you will save when they are gone!

have a look at the SOA sticky at the top of the board, this shows you all your incomings and outgoings. if you complete it for when your debts are gone you will see how much surplus cash you will have to save towards a deposit.

it will take a while to save a deposit and by that time your credit rating will have improved.

good luck xx

ermine

All a bit churlish and spiteful.

Au contraire, if overspending was the problem then more overspending is never the solution.

I had to fight down my spending in order to save against potential redundancy. The point of reaching a goal is the most dangerous of all, because of this 'you deserve a treat because you're worth it' belief created by countless advertisers. A bottle of champers on getting there is fine, but the temptation to up your lifestyle just a teeny bit because you've reached your goal and because you're worth it must be fought with eternal vigilance, otherwise the cycle will repeat

DVardysShadow

bramble1 wrote: »

Because rent here costs the same as a mortgage would - It's not cheaper unfortunately, I find renting very stressfull and don't really feel like i can totally relax in what should be my own home.

Plus the only thing i've ever wanted to do is own my own property. It's my life goal. Rent isn't really more flexible when you've bad credit and a dog - makes it much harder to find properties!

OK, you can get a fix on a mortgage - but at some time, before the end of your fix, mortgage rates will go up substantially and you may have a terrible shock. Owning property can also put you into negative equity, which is effectively further unplanned debt and is a factor in the debt equation which you just don't need to worry about if you are renting.

Dave101t

being out of debt is reason enough, and motivation enough.

determined_new_ms

we became debt free 7 months ago, it really is a huge weight off of our shoulders. we save a fair amount each month, can do what we want when we want. We're less frugal than we were - can afford better quality items now - but we still are. We went on holiday in Feb all paid in cash, we intend to do the same again in the next couple of months.

Its worth it believe. Get debt free, save for your deposit if that's what you want. It really is a good thing you wont be able to get credit for a while - it is as someone else said - a noose around your neck.

Stay strong.

dianadors

A girl I work with worked hard to clear her boyfriends debt. They had to live in some awful places with their 2 boys whilst renting, but her goal was always to buy their own home. Once the debt was cleared, they saved like mad and I mean like mad. As soon as the CCJ against the boyfriends name was cleared, they were able to get a mortgage with the large deposit they had saved. A few years on she has a beautiful home - has taken in her boyfriends son fro a previous relationship and they are all working hard to pay off the mortgage whilst having a fabulous family time. She is one of my heroes.
I was fortunate not to have debt before I got a mortgage - credit wasn't really available to my generation when we were younger (thank fully!) We have just paid our mortgage off (we are 51) and all of our credit card debts too. We did it by saving not spending. My mum never bought her own home and still pays rent aged 71. It feels great to be debt free, but we realise we need to be saving now for our old age. I wish you well.

JimmyTheWig

bramble1 wrote: »

Thanks - I don't pay any interest on my repayment plans

That makes a difference. See my calculations further down.

and i'm not going to drop the payments at all

There's not much difference (in terms of the calculations) between dropping payments and not upping them.

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.

Right, but this still goes back to my earlier post. The point is to compare two scenarios with a different "end of it all" date is an unfair comparrison.

Lets say you owe £12,000 and are paying £333.33 a month for 3 years.
Lets say you have an extra £166.67 spare each month. You could save this each month and at the end of the three years you would have £6000 (plus interest) in savings.
Or you could add that to your repayment, paying £500 a month and be debt free (with no savings) in 2 years.
It doesn't make sense to say that the first option is better because you will have more savings when you become debt-free. Of course you'll have more savings because you have taken longer to get there. With the first option if you then put the £500 a month into savings for another year, at the end of the same three year period (when you would have been debt-free with option 1) you will have £6000 (plus interest) in savings.

Now, given that you are not paying interest on your debts then you could argue that it is worth repaying the minimum and putting the rest into savings. That's because the interest on your savings you would receive with option 1 would be more than the interest you would receive with option 2.
But there's not much interest to be gained on savings at the moment. At 3%, you'd be looking at £270 interest with option 1 or £90 interest with option 2.

Lets say you carry on (with either option) saving the £500 a month for another year.
With interest you will end up with £12,540 with option 1 or £12,360 with option 2.

You want to buy a flat for £120,000. You go to the bank and ask for a mortgage.
Option 1: You need a mortgage for £107,460 (89.55%) and have been out of a repayment plan for one year.
Option 2: You need a mortgage for £107,640 (89.70%) and have been out of a repayment plan for two years.

Every bank is going to have their own opinions. I can't speak for them. But I personally would prefer to lend money to someone in the "option 2" situation.

As long as you keep up paying the money you were using for debts into your savings account to buy a home (if that is your priority) then I'd say pay off your debts as quickly as you can.