Clear Debt or Save for Deposit?

Just_Trying_4

Hi All,

I would really like some advice on my current situation, allow me to explain -

I currently rent a small 1 bed property with my boyfriend. We have £2100 debt on a credit card (interest is 1.31% per month) and £3000 debt (I KNOW :eek:) on an overdraft. We pay our salaries into this account to minimise interest charges but up until now it has been taken back to the maximum every month.

This debt has come from some silly overspending but honestly in the most part it has been just to get by (car repairs, cash flow shortfall due to changing job, being made redundant etc etc).

For the the first time ever, we are now in a position where we have a decent amount of disposable income to do something with.

Obviously my initial thoughts were to pay off the debt first, but we are really keen to get our own house as we are wasting so much money on rent, and I dont think our huge overdraft counts towards our total debt for some reason? (ie would not be deducted from what we could borrow). I say this because when I checked my credit on experian, it was not listed as a debt, or anywhere in fact.

Something I should add is that I have bad credit due to an unresolved dispute with T Mobile so I now have a defaulted account (approx £200), but have never missed any payments on anything else including car finance etc. This means I cannot move my debt to a 0% interest card, and also if I pay off the defaulted account I don't know if it will still make it very hard for me to get a mortgage?

We now have around £450 a month to choose what to do with, I know its not a massive amount but I really want us to make the best decisions for our future. We are 24 & 25 and want to be debt free and have our own little house asap.

Thank you anyone who takes the time to read my huge essay and I will really appreciated your advice! x :beer:

anselld

Pay off debt first and try to find a way to remove the default as it will cause real problems with any mortgage application for 6 years.

sugarwalsh

Pay off your debt - it wont take long if you can put £450 a month towards it and then once they are paid you will be able to save more as you wont have your cc to pay off each month.
This also gives you time to resolve your phone dispute - as this will cause problems. We found our local building society by far the most flexible when it came to giving us a mortgage, they really listened when we explained the 'bad' credits were phone companies and an old load of problems (6 years prior) were due to a divorce my partner went through. They did want to see thought that we could afford it - ie NOT going to the full extent of our overdrafts etc.
Plus - don't underestimate how good you will feel if you pay off your debts, there really is nothing more liberating!

Good luck,
Megan

GAH

As above, you don't wanted to start life in your new home with debt overhanging you.

hazyjo

I've always found that any debt (and more, to allow for interest, etc) will be wiped off what you can borrow. It certainly offered us less when hubby had debt, even though that debt would have been paid off when his flat sale went through (we sold his flat and my house to buy a house together). As it happened, the flat sold first so we could clear the debt. The amount we were offered by the mortgage provider was definitely more.

Makes sense to clear debt. It's bad enough with the usually monthly expenditure and mortgage without having to find another hundred or two to pay back debt.

As you've already said, there'll always be something round the corner that costs just that bit more than you have. You really should clear the debt, save for a house, and allow yourselves a bit of a buffer, even if just a couple of thousand (which should be built up again) to allow for any unexpected house or car repairs.

Jx

moneypuddle

Hmm can work either way. In theory yes its better to pay off your debt, then begin saving for a mortgage, but psychologically it was better for me to do it another way.

I switched everything to 0% so I wasn't paying any interest then paid off debts and saved each month. I understand that that wouldn't make sense to some people but I just felt better about knowing I had some savings building up too because you never know whats around the corner! In fact I'm doing to same thing again now in savng for a baby - am paying off me £1700 on a credit card and trying to save £5k at the same time to have a baby. At the minute I could pretty much pay off my debts outright, but I'm choosing not to do that just in case I fall pregnant earlier than planned.

Whichever works for you really!

Just_Trying_4

Thanks for all your advice guys, I guess my gut feeling was the same as moneypuddle that psychologically it would feel better knowing I have some cash building up that I could free up IF I need to, and also knowing my house deposit was building up...then again that is probably what got my in this mess in the first place, knowing I could over spend. The trouble is as I said I don't have the option to switch everything to 0%....

I guess I need to buckle down and get on with whacking it off my debt...I just needed telling

One more thing...so if I pay off this defaulted account, is it still going to stop me getting any form of credit for 6 years from the default date? Or will building socities etc overlook it, if it has been paid off? Thanks again!

Just_Trying_4

Ps, moneypuddle how did you do that little debt/savings counter on the bottom of your post?

sugarwalsh

Moneypuddle - whilst I think you saving and planning for your baby is brilliant, doesn't it make more sense to pay off your debt and then put all that money towards having a baby? As you are yet to try for a baby, if you were to pay the debt off you could have a reasonable sum saved up before your baby was born, even if you fell pregnant today. The best route to falling pregnant is the unstressed one, I have found!

You could be instantly debt free and start saving for your planned future?

Megan

sugarwalsh

Just trying - if it helps look at it this way - you are not saving if you are paying interest on other debts, you are just lining the lenders pockets! It helps me when I have to pay off things I owe - I also found chipping away at things slowly helped. For example I had a credit card for £1200 on 0% so I set up a dd to pay £100 a month. At the same time every time I got money in my account I paid something off my other debts. You will be amazed at how just paying £10 a week off helps. It has taken me 2 years, but I have now paid off my credit card, another one of £1000, an over draft of £450 and debenhams card of £300. I don't get a wage really as I work for my partner and just do casual work in the summer. Every little helps and once one debt is paid off it made me really determined to do the rest.
Not sure about your 'phone dispute - we just found that we had to talk directly to someone to 'bend' the rules, or take into consideration our actual financial situation, not just what it said on the credit reports.
Good luck - this time next year you will be debt free!!!!!!

MEgan

ognum

My vote goes with paying down your debt too and then saving for your deposit