Credit cards paid off versus saving for a house deposit????

money???_2

Hi, I have £7000 on three credit cards, they are all on low rates for the life of the balance. I also need to move home, more space required for a child and I need a deposit. We have £8000 in equity and need a £24000 grand deposit so whilst I can save for this I'm not sure if I should pay the cards off first or just save like mad to get the deposit. Financially what makes the most sense??
Please help...

jason1231972

money??? wrote: »

Hi, I have £7000 on three credit cards, they are all on low rates for the life of the balance. I also need to move home, more space required for a child and I need a deposit. We have £8000 in equity and need a £24000 grand deposit so whilst I can save for this I'm not sure if I should pay the cards off first or just save like mad to get the deposit. Financially what makes the most sense??
Please help...

Financially, what makes the most sense is paying off debts, as is almost always the case.

Personally, it's up to you. If you 'need' the new house, but are managing your credit card debts OK, then go ahead and buy the house.

The only fly in the ointment that I can identify from the limited data in your post is that a mortgage lender may be uncomfortable with your existing level of debt. However, this is very much subject to your income and the way in which your CC payments impact on your affordability. If your income is relatively high by comparison to your CC balances, and the CC repayments don't disrupt your affordability, you should be OK. People can and do qualify for mortgages whilst being in other debt. You appear to already have one, but it looks like you're after a bigger loan than you already have.

However, if your income is low in relation to your CC debt and/or if your CC payments do interfere with your mortgage affordability, you may not have much choice but to pay the CCs now, and start your savings afresh.

Oh, forgot to add...whatever you do (go easy on the searches if you're mortgage-bound), have you any chance of transferring one, two, or all of these debts onto 0% card(s)? You'd need to assess whether or not any 0% deals would financially beat your existing 'low for life' APRs, though.

MoneySaverLog

If whatever interest rate you are paying on the cards is more than the interest rate you are getting in savings it makes sense to pay off the cards first.

Otherwise it's the other way round.

Either way I suspect you'd need to pay the credit card off before applying for the mortgage so whether you pay it off now or before you apply would probably come down to what rate you are paying on the card / getting in savings.

izools

Keep in mind also that the amount you owe will affect your maximum lend.

Based purely on income, the lender my OH and I just recently used for a mortgage said they would lend is £205,000 but when they adjusted this to take into account our unsecured debt this reduced to £137,5000; so the effect can be quite dramatic.

If your debt is quite small compared with your income it would be best to try to get as much as it as possible on 0%, and pay above the minimum (even if only £1 a month above the minimum) whilst saving for your deposit.

If however your debt is quite notable compared with your income chances are you won't have a choice but to clear as much of it as possible for a lender to provide you with the required amount.

Good luck!