Pay off debt or save?

everything

Hi everybody, looking for some advice. My husband and I were originally planning to buy a house next year sometime but now, out of the blue my parents have given us a cheque for £20k as a deposit so we can get somewhere sooner. This is a gift, no strings attached. However we're unsure whether to use part of this money to pay off our existing card balances totalling £6k - I know . We wouldn't be looking to use the full £20k as deposit, probably somewhere around half that (if using Help to Buy). Buy paying off the cards would allow us to save much more each month. Do you see my dilemma?

Thrugelmir

Clearing your debts should be your priority. As it will immediately allow you to start saving. The combination of which will set you up for buying a property in the not too distant future.

Kirstyb1987

My parents gave me 15k. I had 2k on a credit card and 1k on an overdraft... It killed me to do it but I paid all of my debts off. The weight it lifted off my shoulders was unbelievable to know I didn't owe anyone in the world a penny. I used another 7k on a deposit and now, having my mortgage in place, plan to use the rest on restorations.

Can't encourage anyone enough to pay off debt. What's the point in saving when you have debts?

Now my debt is paid off I am at least £200 a month better off - and that was just my minimum payments!

Pay it off, you won't regret it!

everything

Ok so if underwriters are looking over our bank accounts and see £20k come in from my parents, then some of it being used to pay cards off, you think that won't look bad? My parents expect us to buy in the next couple of months (the reason they gave us the cash was so we could buy before interest rates and house prices went up). We've seen a house we like for £200k so need £10k for a 5% deposit with HTB and a further £3k for solicitors, stamp duty etc

Thrugelmir

everything wrote: »

(the reason they gave us the cash was so we could buy before interest rates and house prices went up).

Arguably rising interest rates will have the reserve effect, i.e. reduce house prices.

Why not explain that you wish to get yourselves into a better position financially (no mention of debt owed ) so would prefer to wait until next year. So defer acceptance of the gift.

everything

Thanks Thrugelmir, but we're really not wanting to continue renting until next year. If there is any chance of us being able to pay off the debt and use the remaining £13k of the gift to pay the deposit, solicitors fees, stamp duty, than we would like to try. After all, lenders would see FTB's with no debt, no blemishes on our credit files, good income (£60k+) and a government-backed deposit of 25%. Surely that can't be a bad position to be in? The only real negative is that we have no savings of our own. We've been advised by friends in the business to avoid Nationwide as they might be stricter with this but will definitely be instructing a broker to find us the best lender.

McFly

For sure pay off any debt before commiting to buying a home. The bank may even make it a term of the mortgage to have the 6k paid off before completion. You also state you have no savings of your own? yet quote £60K + as your combined incomes and mention you owe 6K. Any bank will probably want to question where your money goes.

Also your looking at around £5k in solicitor fees/mortgage product fees/Valuation.

everything

Bulk of our outgoings are Rent £900, household bills £400, car leases £300 and after all of this we have just under £800/mth "left over" (each). Out of this we have been paying large chunks off debt each month, mainly from our wedding last year. This is why we have very little savings.

Kirstyb1987

everything wrote: »

Ok so if underwriters are looking over our bank accounts and see £20k come in from my parents, then some of it being used to pay cards off, you think that won't look bad? My parents expect us to buy in the next couple of months (the reason they gave us the cash was so we could buy before interest rates and house prices went up). We've seen a house we like for £200k so need £10k for a 5% deposit with HTB and a further £3k for solicitors, stamp duty etc

My personal experience would be that they would see you debt free with a good few grand left. You say you are left with £1600 between you left at the end of the month. Therefore you would be £1600 better off. It's a no brainer!

Ps the above post is also completely correct. If you were to get a mortgage they would most definitely make it a condition that the 6k is paid off before you complete. I had £80 on a credit card and they have put that menial amount in to my contract.

getmore4less

Cut back on spending for a couple of months while looking for a place and it will take another couple of months to process the purchase.


Should be able to get very close to having replaced £6k in 4 months.


Your mortgage will be relatively low for £60k salaries so should be able to overpay significantly as well.

Miss_Moneysaver

Hi,


Gosh £900 in rent :eek:
I would pay off the 6K debt first using the money. At least you can start overpaying the mortgage if no debt to pay off.
We used to earn £60K+ until I went part time (after baby no.1). We now earn around 45K-50K plus have paid huge childcare bills over the last 10 years (baby is now 10 and he has a 6 year old sister). I may be going full time again soon though (been asked but thinking about it)...
Good luck on your journey