Pay off debts before saving a deposit?

Just_30

A bit of background...

I ran up some debt years ago living beyond my means but I have very much learned the error of my ways! A friend was able to loan me money to consolidate my overspending errors and I also have a loan for my car which I am paying off. My total outstanding debt at time of writing is aprox £11,000 with my debt free date of August 2015. I am now in a very fortunate position, earning relatively good money and my monthly debt repayments are just an inconvenience rather than a problem.

Me and the OH are saving for a deposit and currently have roughly £3500 each towards this. We both hate the "dead money" aspect of renting and would really like to buy a house as soon as possible.

I was just looking for advice and opinions on whether I should pay off my debts before concentrating on saving for a deposit so much? I do realise that paying off debts is usually more cost effective than saving but as I say, we would really like a place of our own, not wasting money paying off the landlords mortgage!

Toomuchdebt

If it was up to me I would definitely pay off the debts first-you'll be able to save for a deposit much quicker after they are paid off and it'll be nice to move into your own house without any debt.

JustinCredibleGillespie

Would it be such a bad idea to go ahead and buy a house and keep servicing your debts every month? Would you struggle?

JCG

xx

rising_from_the_ashes

I would agree - also, if you look at the interest you're paying on the debt, it's probably way more than you'd get for the savings.

You could still put something towards savings - but personally, I'd want more to be going to clearing the debts.

[Deleted User]

If you are earning more interest on you're saving than you are spending on debt, then I would keep the savings.

However, if I was your friend and thought that you were saving extra cash rather than paying me back I may be a bit miffed.

If I were in your situation, I would pay back my friend, and unless earning less interest on savings than the car finance/loan is costing I would keep on saving and paying this debt off.

tulip28

Are you on any DMP /IVA? I'm not sure if you can borrow (apply for a mortgage) whilst on any agreements... If not then stay as you are and save/pay debts.x

Sorry - just saw that your borrowed the money from a friend - I would pay back my friend who bailed you out in the first place and then save save save! x

claireabelle_2

Also bear in mind that lenders will consider any outgoings when they do affordability to repay!

foxgloves

I think I'd opt to pay off the debt first & start life as home-owners in as strong a postition as possible. Mortage lenders do ask for an inventory of your current debt to inform how much they are prepared to lend you. We found this out over a decade ago when we worked out what we thought we'd be able to borrow & then sat there as my partner's debt at the time was deducted from the total. I do understand your feeling that rent is 'dead money', as I used to think that too, but with hindsight, although I'm glad I was able to become a homeowner, it is scary how expensive homeownership can be when you become the person responsible for big repairs. We're all different, though, so hope you make the decision that's right for you.

Just_30

JustinCredibleGillespie wrote: »

Would it be such a bad idea to go ahead and buy a house and keep servicing your debts every month? Would you struggle?

JCG

xx

Thats one of the options that is getting serious consideration. I have spent many hours / days pouring over budgets on spreadsheets, playing around with all the variables and the simple answer is, yes, I believe I can service the debts and buy a house. Interest rates on mortgages would have to go very, very wrong for it to become a struggle but even then, after a fixed deal of say 3 years has ended, I will be debt free so the money can go towards higher mortgage payments if needed.

Just_30

tulip28 wrote: »

Sorry - just saw that your borrowed the money from a friend - I would pay back my friend who bailed you out in the first place and then save save save! x

Thats not an issue really. We agreed repayment terms when I borrowed the money - I pay back over a 5 year term (60 months) @ 5% APR. This way he gets a decent "savings" rate and I get a much better deal than what I would have got from a bank. Everybody is happy. He is aware that I am saving for a potential mortgage and its fine.

Just_30

Toomuchdebt wrote: »

If it was up to me I would definitely pay off the debts first-you'll be able to save for a deposit much quicker after they are paid off and it'll be nice to move into your own house without any debt.

I understand your reasoning, but my savings and extra cash going towards clearing the debt faster then means I am back to square one with a house deposit i.e £0.00!:) Which leads on to saving a significant amount again, which takes time in which I could have been paying off a mortgage and clearing my debts.

Please bear with me as I am just thinking out loud here and I do appreciate all the comments that have been provided so far... Its a tricky decision.