Should I Pay Off Debt or Not?

HartJ

Hi

I would appreciate some help from any mortgage brokers/people with experience: I am saving towards a house deposit and currently have £3k in debt and about the same in savings. I am hoping to have at least a 10% deposit by the end of the year but will continue to save depending on circumstances.

I have read Martin's Guide and he recommends that we pay off debt before savings however my debt is all on a 0% CC and my savings are divided between 75% in an 8% account and the rest in a 4.25% account.

By the time I come to look for a mortgage, I will have approx. £500-700 still on the 0% card.

So, should I use my savings now to pay off my debt and start saving again or should I continue to save and pay off the debt together? Which would look better to a mortgage provider - showing I can pay off the debt gradually or just having none at all but possibly a smaller deposit? I would rather not sacrifice my 8% account which has conditions attached - if I make any withdrawals I lose all interest. It runs for a year with the interest paid at the end which will be October.

Many thanks for any help in advice.

Dave_Ham

Firstly, unfortunately your 8% account is not really an 8% account. You will not necessarily get what you think as the money is rolled up..

Technically you are better off leaving the 0% credit card debt, although in reality I would suggest you try and pay off as quick as possible and then start saving, saving saving

Perception wise, seeing an amount build up and having a target figure may make saving easier...

Keep up the good work and if you really mean it, then set yourself some saving targets and check the other forum areas for some more tips...

Thrugelmir

By all means utilise the card. However base your deposit calculations on clearing the card in full at least a month before applying for the mortgage.

HartJ

Thanks for your replies.

DaveHam - Ideally I would like to clear the debt and start clear with the mortgage as I would also like to have a cushion of savings when I start making mortgage payments. I also appreciate that 8% is not necessarily an 8% return.

Thrugelmir - This will allow me to fully maximise my savings account too as it ends in October. Will a month be sufficient time to not scare off lenders?

Joe_Bloggs

@HartJ and all.
Congratulations to HartJ on reading one of many Martin's Guides. They are thought provoking.

If all the debt are at 0% or very low interest and far less than your savings rates then you are termed to be stoozing. I do wonder how much it cost to transfer the money to a 0% credit card. In the old days it could be done for nothing. These days It can be a few percent of the total, reducing the potential for saving money. There is sub forum for this.

An eight percent regular savings deal is eight percent per annum for the first month deposit, A deposit a month latter has earn less interest in total over the remaining year but it will still earn interest at the same rate. Regular savers are fantastic if you can keep up the financial discipline and not fall into traps in the terms and conditions. There is a regular savings calculator on this site

The most important thing of all is not to trash your credit record with forgotten/unknown continuous payment authorities for example on closed credit cards etc.
Check to make sure you do not have any forgotten debts that could make it all very difficult, verify details. Don't pay for a credit score. There is a guide for this too.
Enjoy discovering the site.

J_B.

Thrugelmir

At least a month for your credit record to be updated.

If you prove the deposit is your savings then hard to see any issues.

HartJ

Hi Joe

It cost £170 to transfer the debt to this 0% card but I compared that with the interest I was paying on my old cards and it worked out better. I closed the account on one of the cards and the other is still at 0.

I have SOs to pay off the card (set amount to ensure it gets paid but I top it up) and also to my savings accounts. I try to be organised!

Thanks for your help - this site is fantastic!

HartJ

Thanks for all your advice. Is the general consensus then to continue as I am but ensure I pay off the debt at least one month before application rather than pay off the debt now?