Pay off debts or house deposit? Please help!

nockynoonah

Hello, this is my first post so please be gentle!

I've been using this site and its forums for a long time now and in the past have had huge amounts of debt which I've managed to reduce greatly through hard work and discipline. I still have debts and am now facing a crossroads. I've been thinking about it for so long now that I can't see the wood for the trees and just don't know what's best so would be ever so grateful for your advice.

I've always been very ashamed of my mistakes with money and I don't talk about it to anyone, so having someone else's input will be new for me.

Both me and my husband have debts which we have always dealt with separately as neither wanted the other saddled with their mistakes, but we are open to change and can deal with things jointly if that's better.

In two weeks we will be moving home. We are selling our cottage and moving into a rented house to give us time to sort out our finances once and for all, so that when we buy a home in the future we can live comfortably and without so much worry. The rented house is nice and initially we will live there for a period of two years, but to stay there longer won't be a hardship.

After all our moving costs and fees we will be left with around £19,000, we will put £1150 of this down as deposit on our rented house so this will leave us just under £18,000. My question is - what should we do with this money?

-Don't touch it, put it in the bank as our future house deposit and continue to pay our debts monthly?
-Use half of it to pay off as much debt as possible (most expensive debt first) and put the rest in the bank as our future house deposit?
-Use all of it to pay off as much debt as possible (most expensive debt first), then spend the next two years paying off the remaining debts before starting to save for a house deposit from scratch?

I feel like this is a real pinnacle moment for us and so want to do the best thing for our future. As you can see we have money to meet all our commitments, so we are managing comfortably, that's not an issue, but we want to work towards being debt free, it's been hanging over us for so long. I'd be really grateful for any advice you can give, I've spent so many sleepless nights thinking about this.

Our SOA is below, I have used figures for AFTER we have moved into our rented home and have not put in budgets for entertainment and so on and these will be dictated by how we deal with our debts, the debts come first. Thank you very much for your help.


Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1769
Partners monthly income after tax....... 1200 (approximately, he is self employed so it can be more than this)
Benefits................................ 82 (child benefit)
Other income............................ 0
Total monthly income.................... 3051

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 750
Management charge (leasehold property).. 0
Council tax............................. 140
Electricity............................. 50 (estimate)
Gas..................................... 50 (estimate)
Oil..................................... 0
Water rates............................. 25 (estimate)
Telephone (land line)................... 30 (includes broadband)
Mobile phone............................ 47 (for both our phones)
TV Licence.............................. 12
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 200
Clothing................................ 0
Petrol/diesel........................... 200
Road tax................................ 0 (paid all in one go)
Car Insurance........................... 0 (paid all in one go)
Car maintenance (including MOT)......... 0 (adhoc)
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 14
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund..........................
Total monthly expenses.................. 1518

Assets
Cash.................................... 18000
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 2000
Other assets............................ 0
Total Assets............................ 20000

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Lloyds loan....................8850......199.......10.9
Barclay loan...................5900......203.......12.9
Tesco loan.....................4900......152.......7.7
Barclaycard Breathe............1565......35........8.9
MBNA...........................1360......13........29.9
Virgin card....................4300......45........0
M&S card.......................4800......125.......20.9
Barclaycard....................9365......197.......6.9
Total unsecured debts..........41040.....969.......

Monthly Budget Summary
Total monthly income.................... 3,051
Expenses (including HP & secured debts). 1,518
Available for debt repayments........... 1,533
Monthly UNsecured debt repayments....... 969
Amount left after debt repayments....... 564

Personal Balance Sheet Summary
Total assets (things you own)........... 20,000
Total HP & Secured debt................. -0
Total Unsecured debt.................... -41,040
Net Assets.............................. -21,040

happytails

Pay off your debts (highest APR first)

Keeping it aside for the desposit wont earn you as much as what the debts are costing you.

Pay things off and re save, keep within your means. You will be better off in the long run x

Tixy

I agree, debts first.

Whilst I know you haven't budgeted for everythingand for the things you pay annually - even if you only put £1300 of the £1533 towards your debts you could be debt free in 18months.

Then you could start saving up at a rate of £1300 a month (and have a £13k deposit in 10 months or £23k in 18months).

nockynoonah

Thank you both so much. Wow, when you put it like that Tixy, there could be a light at the end of the tunnel.

tallyhoh

Agree, debts first, interest rates on saving are MUCH less than APRs on debt

nockynoonah

Thanks so much for your advice, it's really helping!

brokemedic

I would pay off all the debts first.. You will save money in the long run as the interest on the debts will far outweigh any interest you're likely to earn in a bank account.

Also imagine how much less stress will be attached to buying your new home with all that debt paid off.. I remember how all the costs added up (stamp-duty, arrangement fee, solicitor's fees) and that's before you even start on decorating the house lol.. You will also improve your credit rating as well..

Hope that helps..

thehappybutterfly

If it were me, I'd pay off the debts with the biggest monthly payments - Lloyds and Barclaycard which would free up nearly £400 a month which you could throw at the debts with the biggest APR - MBNA and M&S. I know, because it's happened in the past to me, that if I had £19000 in the bank doing nothing, it wouldn't be there for very long! It'd be spent on some useless piece of equipment or un-needed holiday. And I'd be left with all the debt and no deposit!

Good luck Nocky - you're taking a very sensible approach to your future. Well done!

mildredalien

You've already got some good advice, but I just wanted to recommend filling in all of your SOA - divide yearly or irregular expenses to get a monthly amount and make sure you save that up somewhere, plus an amount for emergencies. Make sure to include and plan for car expenses, entertainment, haircuts, medical stuff (including glasses/contacts if you need those), possible child related expenses that you may need and anything else not already covered. Those things can really add up if you don't keep your eye on them! Plus, that way you'll know how much you really have each month to throw towards debts and eventually a house deposit.

nockynoonah

Thank you all, I'm starting to feel a bit more confident now, it's amazing how much getting advice from others helps. I had thought and thought and thought on it and just couldn't work out the best way. Paying off the debts first seems like the best option, then we can plough the money we save on those into paying off the debts that remain. It's frightening starting from scratch on the deposit, but I suppose really, on paper that money isn't ours anyway because we owe it on our debts! I'm looking forward to working to wipe our slate clean and start afresh. I can't thank you enough for your help, you've made me feel much happier.

MrGreen

Congratulations on committing to tackling your debts, selling your house to do this is a really good move. I suggest you do the same as what others above have said and pay the money towards your debts first, though I'd say pay £17,000 towards the cards and loans listed below and keep £1,000 in a savings account for emergencies, so you don't have to use any of your credit cards if anything happens.

Pay off the debts in order of the highest interest first roughly in this order and you'll have cleared four of your eight debts.
MBNA............................1360......13....... .29.9
M&S card.......................4800......125.......20. 9
Barclaycard Breathe.......1565......35...........8.9
Barclay loan...................5900......203.......12.9
and the rest probably towards your B'card or Virgin depending on how long your 0% offer is for, I assume your 6.9% rate on the B'card is a life of balance offer.

As you pay off your credit cards close the accounts and the money you've been paying towards those cards/loans put it towards the next debt you want to tackle and continue to pay the minimum on the others. So if you continue to pay £950 or more that you are currently paying in another four or five months you'll have cleared another one of your debts.

When you've paid off all your debts, then start saving for a deposit for your next home, hopefully the more your able to put away the sooner this will be, this would be great motivation to help you succeed you'll be back in a home of your own but in a much better position overall. Good luck on your debt free journey.