Pay off debt or keep saving??

21yrold

Hindsight is a beautiful thing

The loan £5700 left on it, i could repay £500 a month on that (in total) and the standard £100 on my Barclay card a month and still save £100-200 a month in the joint account. I've been speaking to my gf and she's going to set me up a budget from my wages and then we can go from there, at least I'm still saving a nominal and paying off my debt.

northerner999

The debts will be taken into account by any lender just as much as your savings. So putting money into a different pot instead of dealing with your debt WILL NOT aid your mortgage chances as much as you may think - there is much more to getting a mortgage than your deposit and earning potential.

While I understand the desire to "save", by putting money in there rather than using it to pay off your loan you are costing yourself. Especially given you want to apply for a mortgage - you'll likely have to pay the debt off in order to get a mortgage, it'll certainly increase your chances of getting a better deal, you may as well do it the cheapest possible way rather then procrastinating and costing more for some mis-placed value of "saving".

If your other half is contributing to saving (assuming her contributing to wiping your debts is a no go), and you already have a pot built up to cover any immediate emergencies (rainy day fund) you should funnel your £300 into paying off your loan rather than savings. You could very quickly make in roads into that loan by paying off an extra £300 a month, with huge savings in avoiding compound interest. £300 x 12 is £3,600, which you could have taken off your loan by next summer. Imagine the interest you'll save on that.

The one thing I'd add is that right now I'd prioritise overpaying on the loan, which is charging interest, rather than the 0% credit card. Other may disagree, given the risk of not getting a 0% deal when that runs out, but the golden rule for me is to reduce those with the highest interest first. Remember that it will need repaying and you must have a plan, but you will see tangible gains - which will hopefully galvanise you - once you see the reduction in interest payments on the loan.

21yrold

northerner999 wrote: »

The debts will be taken into account by any lender just as much as your savings. So putting money into a different pot instead of dealing with your debt WILL NOT aid your mortgage chances.

While I understand the desire to "save", by putting money in there rather than using it to pay off your loan you are costing yourself. Especially given you want to apply for a mortgage - you'll likely have to pay the debt off in order to get a mortgage, it'll certainly increase your chances of getting a better deal, you may as well do it the cheapest possible way rather then procrastinating and costing more for some mis-placed value of "saving".

If your other half is contributing to saving (assuming her contributing to wiping your debts is a no go), and you already have a pot built up to cover any immediate emergencies (rainy day fund) you should funnel your £300 into paying off your loan rather than savings. You could very quickly make in roads into that loan by paying off an extra £300 a month, with huge savings in avoiding compound interest. £300 x 12 is £3,600, which you could have taken off your loan by next summer. Imagine the interest you'll save on that.

The one thing I'd add is that right now I'd prioritise overpaying on the loan, which is charging interest, rather than the 0% credit card. Other may disagree, given the risk of not getting a 0% deal when that runs out, but the golden rule for me is to reduce those with the highest interest first. Remember that it will need repaying and you must have a plan, but you will see tangible gains - which will hopefully galvanise you - once you see the reduction in interest payments on the loan.

Thanks for such a constructive reply

It's a big no no for her money to go towards my debt, i would never let her even if she insisted on it!

Either way to get a mortgage (not that its any time soon) the debt would need to be clear so i am going to now double my payment to £397.46 per month on the loan

I'm fine saving as long as the money is out of my account on the 15th of each month, that's the annoying thing really...I wont notice this extra coming from my bank account to the loan on pay day, I enjoyed watching the savings go up 600 per month as it actually looked like a decent amount, if you get me...saving 100 a month etc doesn't seem a lot of money so i don't get excited by the movement of the total, maybe its just me and I'm strange lol

Either way the £100 off my CC a month as normal and the £400 a month off my loan will make me very happy...I will just think of it as reverse saving and watch the number jump DOWN instead of UP :money:

The joint account money will be staying as it is as that's our rainy money, as you say..so that can grow slow while my debt shrinks !

CoffeeBean_2

You seem to know what you need to do so lots of luck and with the positive attitude and perserverence you will get there:)
seems to be harder these days to get a mortgage so clearing that debt first will stand you in good stead.
all the best

21yrold

La_escocesa wrote: »

That's never been the case for me. They take into account your debt but mainly with regard to your monthly outgoings. If you've got a good credit rating - showing that you've got debt but you could keep up with repayments - then it might be fine.

Why don't you see about getting a mortgage in principal, just to see what you might/might not be able to get? You can call 'London and Country' and do it all over the phone. It'll give you a rough idea without getting credit checked etc.

I've never missed payments and have 3 credit cards open, i've got 6k limit on the Barclay card, 6k on the MBNA (zero balance) and 2k on the natwest (zero balance), I keep them open as i figured its a sign of good credit if I'm not using the credit etc, is that correct?

I've always had letter through off either Barclay card or MBNA when my other 0% runs out, so figured why close them just to re-open on in 15 months time etc

I have thought about doing a mortgage application, i just never wanted to waste peoples time but it would give us a better idea of what we need, for now I'm going to concentrate on shifting this loan and then refocus on saving/CC after that


Should i close my Credit cards, i do not use them...i don't have the cards or know the account numbers or passwords to use them tbh, so should i keep them open or close them as available credit?

FireWyrm

21yrold wrote: »

Should i close my Credit cards, i do not use them...i don't have the cards or know the account numbers or passwords to use them tbh, so should i keep them open or close them as available credit?

Your available lines of credit are taken into account when applying for new credit so, yes, a good idea to close any that you do not use or have unfavourable terms now. Also, open cards are a security risk since you are not actively keeping an eye on the accounts. It leave it open to abuse and fraud which you would be unaware of until too late.

21yrold

Well I'm not going to be applying for any credit any time soon so will keep the the 2 open for the balance transfer purposes and close the 3rd which is not needed.

Cleans everything up a bit atleast

Zkr65

Lots of good replies..

Providers do vary, but having a balance on a credit card does not usually result in a mortgage provider demanding it is paid.. the balance comes into play in relation to your Credit File - which displays your current borrowing level, i.e if you have the credit card maxed, and make the minimum payment, you're current borrowing ability/level would be a high percentage whereas if you have a limit of 5000 and you're 1000 in, your total borrowing is a relatively low percentage. It is well worth checking your credit file - experian do the free 30 day checks - it will open your eyes to what's good/bad.

Your 'debt' problem is an interesting one.. One thing is, yes it's important to clear it over savings (though always worth having a little savings fund so that when something unexpected happens you don’t have to borrow further) as this works out cheaper in the long run.. However (May get crucified by other MSE gurus here) if you're managing it.. it's not something to be ashamed off or stress about.

Balance Transfer deals are a long term thing, with the 1000s of providers offering credit cards with a BT deal, there's not really much of a chance you can't keep doing this.. the considerations being that a credit file deems credit cards as 'riskier debt' rather than long term agreements such as loans.. but it's almost free for you to borrow that way if you BT constantly.. So one side is focus on the credit card to get rid of that 'risky debt' and then focus on the loan.. sounds great, but actually cheaper to keep the 'free' credit card.. and focus in the expensive loan.. pros and cons.. looking at your credit file will help guide you on what's best, even clearing a chunk of credit card (or perversely - increase the limit on it but don't use it) to 'play' the borrowing percentage figures.. then focus on loan..

Out of curiosity, if you can't afford to pay of the credit card balance.. how do you intend to do a mortgage payment? What sort of mortgage are you looking at, interest only, full payment? (Interest only avoid like the clap)

Another consideration is even though your 'debt' is manageable.. entering into a joint mortgage or joint account with your beloved will tie you together fiscally speaking.. I.e. your debts may affect her credit file.. this includes a joint mortgage.

Another point is on 'closing your credit cards' having access to credit (reasonable to your income) is not a bad thing.. you can also, in theory, use a paid of credit card to increase your credit rating.. but it takes knowhow and foremost; self control. Closing all 'available credit' sounds great hooray no debt and now you can sit on a big pile of gold bars.. the MSE dream.. in reality access to credit is not always a bad thing.. a credit file takes many thinks into account.. if you have access to credit, pay it off, and don't rely on it.. it's much better than not having it at all..

For example (simplified)

Wages 50kp.a no credit/store cards = ok credit score.. but wait, why is there no credit, if they don't have credit, how will they cope if we give them credit?

Wages 50kpa + credit card with 3000 limit which gets paid off in full every month - = fantastic credit score, earns a reasonable amount.. has access to credit, pays off in full and manages it perfectly. Well done you.

It's lovely to get rid of it.. but you sadly loose the advantages.. if you clear it off, keep one credit card active.. make approx £100 payment on it each month, then clear off the full balance the next month.. up goes the credit rating. - you can also get deals now where you get cashback or discounts on fuel.. And I have seen examples of people using the credit card just foe fuel, nothing else.. paying it off in full the following month before interest is incurred.. shows you can manage credit, paying off in full (regardless of the amount - there are small buffers on the amount but £100 is fine) and this helps massively.

Another point, mortgages are a long tern game.. research research research.. there are lots of factors contributing to the best rate, credit rating yes.. but also the type of property, your relationship (married etc is preferable and genuinely helps an application as it shows a stable relationship between the parties) deposit (the more the better) but there are also other factors which are specific to the provider.. I.e. having your main account with them, how long you've been with them etc you can use this to your advantage in the long term mortgage game.. i.e. research the companies you are strongly considering.. then you can open a current account, pay a little money in on a regular basis, as what many people don't realise, is that financial services providers prefer internal credit checks.. I.e. because credit files are easily manipulated.. a company will look at your accounts with them, and how its been managed.. i.e. a good wage going in.. no bounce payments.. no credit abuse etc means they can trust you, they will still perform a credit search.. but if they can already see you're a good customer from your accounts with them.. you're already onto a winner..

Furthermore (I will leave soon I promise) depending on circumstances.. if you are trying to 'get on the property ladder' the government do a shared ownership scheme.. where you buy a percentage of the property.. have the mortgage for that and the government owns the rest, you can then opt to increase your 'shareholding' in the property until you are the full owner.. but even if you own say 25% and wanted to move.. you can sell your share and would also gain the increase in value if the prices have gone up.. not suitable for every property.. but well worth a look as it's cheap, flexible and cheaper than a full mortgage and renting..

Hope this helps..

C

21yrold

Thanks for the reply

ChrisVonae wrote: »

Lots of good replies..

Providers do vary, but having a balance on a credit card does not usually result in a mortgage provider demanding it is paid.. the balance comes into play in relation to your Credit File - which displays your current borrowing level, i.e if you have the credit card maxed, and make the minimum payment, you're current borrowing ability/level would be a high percentage whereas if you have a limit of 5000 and you're 1000 in, your total borrowing is a relatively low percentage. It is well worth checking your credit file - experian do the free 30 day checks - it will open your eyes to what's good/bad.

Your 'debt' problem is an interesting one.. One thing is, yes it's important to clear it over savings (though always worth having a little savings fund so that when something unexpected happens you don’t have to borrow further) as this works out cheaper in the long run.. However (May get crucified by other MSE gurus here) if you're managing it.. it's not something to be ashamed off or stress about.

Hi first of all I've never struggled with payment of my loan or CC, i just waste money (going out for food all the time or with my mates or weekends away) I know where i go wrong, its just trying to correct that part of me


Balance Transfer deals are a long term thing, with the 1000s of providers offering credit cards with a BT deal, there's not really much of a chance you can't keep doing this.. the considerations being that a credit file deems credit cards as 'riskier debt' rather than long term agreements such as loans.. but it's almost free for you to borrow that way if you BT constantly.. So one side is focus on the credit card to get rid of that 'risky debt' and then focus on the loan.. sounds great, but actually cheaper to keep the 'free' credit card.. and focus in the expensive loan.. pros and cons.. looking at your credit file will help guide you on what's best, even clearing a chunk of credit card (or perversely - increase the limit on it but don't use it) to 'play' the borrowing percentage figures.. then focus on loan..

Out of curiosity, if you can't afford to pay of the credit card balance.. how do you intend to do a mortgage payment? What sort of mortgage are you looking at, interest only, full payment? (Interest only avoid like the clap)

(well I've always paid off (in savings or debt) about 700 a month as well as 200 rent (not a lot i know!) and have money left spare, more than enough for me tbh, as i said before I'm just wasteful...This is more of a change for me socially and in my head rather than struggling to pay off debt


Another consideration is even though your 'debt' is manageable.. entering into a joint mortgage or joint account with your beloved will tie you together fiscally speaking.. I.e. your debts may affect her credit file.. this includes a joint mortgage.

Another point is on 'closing your credit cards' having access to credit (reasonable to your income) is not a bad thing.. you can also, in theory, use a paid of credit card to increase your credit rating.. but it takes knowhow and foremost; self control. Closing all 'available credit' sounds great hooray no debt and now you can sit on a big pile of gold bars.. the MSE dream.. in reality access to credit is not always a bad thing.. a credit file takes many thinks into account.. if you have access to credit, pay it off, and don't rely on it.. it's much better than not having it at all..

For example (simplified)

Wages 50kp.a no credit/store cards = ok credit score.. but wait, why is there no credit, if they don't have credit, how will they cope if we give them credit?

Wages 50kpa + credit card with 3000 limit which gets paid off in full every month - = fantastic credit score, earns a reasonable amount.. has access to credit, pays off in full and manages it perfectly. Well done you.

It's lovely to get rid of it.. but you sadly loose the advantages.. if you clear it off, keep one credit card active.. make approx £100 payment on it each month, then clear off the full balance the next month.. up goes the credit rating. - you can also get deals now where you get cashback or discounts on fuel.. And I have seen examples of people using the credit card just foe fuel, nothing else.. paying it off in full the following month before interest is incurred.. shows you can manage credit, paying off in full (regardless of the amount - there are small buffers on the amount but £100 is fine) and this helps massively.

Another point, mortgages are a long tern game.. research research research.. there are lots of factors contributing to the best rate, credit rating yes.. but also the type of property, your relationship (married etc is preferable and genuinely helps an application as it shows a stable relationship between the parties) deposit (the more the better) but there are also other factors which are specific to the provider.. I.e. having your main account with them, how long you've been with them etc you can use this to your advantage in the long term mortgage game.. i.e. research the companies you are strongly considering.. then you can open a current account, pay a little money in on a regular basis, as what many people don't realise, is that financial services providers prefer internal credit checks.. I.e. because credit files are easily manipulated.. a company will look at your accounts with them, and how its been managed.. i.e. a good wage going in.. no bounce payments.. no credit abuse etc means they can trust you, they will still perform a credit search.. but if they can already see you're a good customer from your accounts with them.. you're already onto a winner..

Furthermore (I will leave soon I promise) depending on circumstances.. if you are trying to 'get on the property ladder' the government do a shared ownership scheme.. where you buy a percentage of the property.. have the mortgage for that and the government owns the rest, you can then opt to increase your 'shareholding' in the property until you are the full owner.. but even if you own say 25% and wanted to move.. you can sell your share and would also gain the increase in value if the prices have gone up.. not suitable for every property.. but well worth a look as it's cheap, flexible and cheaper than a full mortgage and renting..

We were looking at maybe help to buy, but i think a standard mortgage mortgage would be a lot 'cleaner' and the correct route to go down for both of us

Hope this helps..

C