Clear Debt or Save for Deposit?

DVardysShadow

moneypuddle wrote: »

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!

You are doing the right thing, but for entirely the wrong reason. It makes sense to have lots of 0% finance and tuck it away where you get some interest on someone else's money.

The 'psychological' aspect is however, pure self delusion.

Just_Trying wrote: »

... 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?

if the account is in dispute, you should not be marked as defaulted. Have you raised the dispute in writing?

lazer

Just_Trying wrote: »

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:

Honestly - I would pay £250 a month to the debt and save £200 for "emergency savings" so the next time the car needs repaired or whatever you have the savings to do so and don't need more credit!

I think its important you get into the mindset of not using credit and saving up for purchases and the above allows you to this. It also gives you that wee bit of flexibility to maybe save £50 less some month and treat yourselves.

You are both still young, and I would encourage you to not be too concerned about the debts, which given your income aren't to serious.

A 0% interest card would be the best thing, but you say you can't one due to default, check out your credit file for yourself and see if the default is noted, if it is adispute, contact the mobile and get the default removed, then apply for 0% interest card

moneypuddle

DVardysShadow wrote: »

The 'psychological' aspect is however, pure self delusion.

Well cheers, but I'm not the only one who feels that way. I'm fully aware that it doesn't mean I have any more money.

sugarwalsh

Surely the psychological effect does not have to be a 'reality' for it to have an effect - good or bad? Psychological effect is all about how we perceive things as an individual surely? Therefore not delusional, just how moneypuddle feels when she saves money, whether you personally agree or disagree. Just a thought.
Megan

Just_Trying_4

anselld wrote: »

Setling the account will not automatically remove the default.

You could try this ...

Thank you that's really helpful I will definitely try that. If I could get it removed and moved my debt to 0% that would be amazing. Fingers crossed - I am a sales manager so peristent and persuasive by nature so hopefully I have a chance! Thanks again.

Just_Trying_4

DVardysShadow wrote: »

The 'psychological' aspect is however, pure self delusion.


if the account is in dispute, you should not be marked as defaulted. Have you raised the dispute in writing?

I understand where you are coming from re the psychological aspect however I'm not a robot and something as tricky as control every penny of your money needs to be rewarding and motivational otherwise it is unrealistic in terms of longevity. In the same way that binge dieting is unhealthy, I think binge saving / paying off debt is unhealthy - I don't want to end up sitting at home staring at the 4 walls will my debt decresing along with my mental health! I jest but seriously - whilst I am keen to get it sorted I know it has to be realistic for me to stick at it.

And re the default - It was under dispute but after speaking to many patronising 'customer care' advisors and managers never being available, I kind of gave up. It's a very long story but they more or less added lots of made up charges to my account after persuading me to change price plan - my usage didn't increase but I went from paying £35 a month and never going over the price plan to a £30 price plan and my bills ran up to around £700 in about 3 months. It was pretty much my word against theres and when I got a third bill over £200 I just couldn't afford to pay it I then moved so I am not sure if they sent me a letter warning about the default. This was 3 years ago I was so naieve to just ignore it!

Just_Trying_4

lazer wrote: »

Honestly - I would pay £250 a month to the debt and save £200 for "emergency savings" so the next time the car needs repaired or whatever you have the savings to do so and don't need more credit!

I think its important you get into the mindset of not using credit and saving up for purchases and the above allows you to this. It also gives you that wee bit of flexibility to maybe save £50 less some month and treat yourselves.

You are both still young, and I would encourage you to not be too concerned about the debts, which given your income aren't to serious.

A 0% interest card would be the best thing, but you say you can't one due to default, check out your credit file for yourself and see if the default is noted, if it is adispute, contact the mobile and get the default removed, then apply for 0% interest card

Lazer, your opinion is really interesting. That's why I was afraid of paying it all off the debt - I dont want to end up having to use credit again and besides, due to my credit rating I am unable to get any. To resist the tempation of using my CC (was originally £3k) I reduce the credit limit each time I pay some off - knowing full well they won't increase it again! So, if I put the full £450 to that each month and reduce it, I will have no savings and no emergency funds.

I am in 2 minds again now but this does sound like a good way forward, and will be more motivating to also see some savings build up. You are right that we are young and I should probably chill out a bit - having said that time is ticking and we are wanting to settle down really (and have fun along the way of course!).

Lots of my friends are very financially stable having had a lot of help from parents so I tend to put myself under a lot of pressure to sort things out asap!

ognum

Just_Trying wrote: »

I understand where you are coming from re the psychological aspect however I'm not a robot and something as tricky as control every penny of your money needs to be rewarding and motivational otherwise it is unrealistic in terms of longevity. In the same way that binge dieting is unhealthy, I think binge saving / paying off debt is unhealthy - I don't want to end up sitting at home staring at the 4 walls will my debt decresing along with my mental health! I jest but seriously - whilst I am keen to get it sorted I know it has to be realistic for me to stick at it.!

This is really interesting. Like many people you want something but only if it comes easy and with no effect on your current lifestyle. That is absolutely fine but it just means it will take a long long time. Most people do have to suffer a bit to save the deposit for a house there are just a lucky few who dont.
I actually believe you are wrong it is actually healthy to have to live within the finance you have and not live off debt. Healthier both mentally and physically so we can beg to differ!

Just_Trying_4

ognum wrote: »

This is really interesting. Like many people you want something but only if it comes easy and with no effect on your current lifestyle. That is absolutely fine but it just means it will take a long long time. Most people do have to suffer a bit to save the deposit for a house there are just a lucky few who dont.
I actually believe you are wrong it is actually healthy to have to live within the finance you have and not live off debt. Healthier both mentally and physically so we can beg to differ!

Well, despite the debt I am in nothing has come easy and I can tell you I have worked very hard for what I have. I had a £100 holiday last week which was my first in 3 years, I live in a tiny 1 bedroom house with an old telly that I have to hit every time it goes on the blink! I am by no means saying I am hard done by, but the vast majority of my debt I can honestly say was on essentials. I had to support myself and really that was the only was to do it. Thankfully I have been able to work hard to get myself in a position where now I can pay all that back and support myself without credit - which of course I agree is far healthier in every way.

This is why I am keen to get everyones opinions because I have been so looking forward to this time when I can actually make these choices.

I just think that financially crippling myself every month to do it as soon as possible might not be the best thing in the long run. Trust me I know all about restricting my lifestyle to get what I want and I am proud of it to I will step down off my soap box now....:rotfl:

Just_Trying_4

Also, I don't know anybody who has bought a house off their own back....I must just have very privilaged friends. I would love to hear from people who have done it themselves, just to know it is possible!!