Pay off mortgage, credit card or save?

TedLaRue

Hi all

I'm currently undecided as to what to do with my debts, so was wondering if any of you have and advice or have been in a similar situation.

My mortgage is just over £180k and have just remortgaged onto a 5.99% fixed deal for two years. It is on an interest only basis. I also have £4k on a 0% credit card which runs for the next 11 months.

Prior to remortgaging I had budgetted to repay it on a repayment basis so have the money each month to do so.

My quandary is do I leave it on an interest only deal and put the extra money into savings (potentially earning a higher % than the 5.99% I'll be paying back) which I can pay off as a lump sum after the two years? Or do I use the extra money each month to get rid of the credit card debt? Or finally shall change my repayment options on the mortgage and pay off both that and my credits card (this would mean a bit of penny pinching elsewhere!)?

Sorry for the ramble but I'm looking for the best way to pay off as much of my debts as possible over the next two years.

Thanks in advance

Kaz2904

To repay your cc before the 0% runs out you will have to repay £333.33 per month.
WRT the mortgage, if you are very unlikely to lose your job, then it could be worth going interest only and opening up a fair few high interest rate savings accounts (or even current accounts). Remember though that to beat a rate of 5.99% a basic rate tax payer would need to earn more than 7.4875% to beat their mortgage rate (unless it's in an isa and then it's like for like) a higher rate payer needs to earn > 9.983%.
The reason I ask about your job is that if you suddenly need benefits your savings will count against you whereas your mortgage debt is irrelevant.
Very often, interest only mortgages seem to be more expensive than repayment. I'm not a financial whizz but I think that it is because as you repay your mortgage you pay less interest because you owe less. If you are saving your repayments separately then you will always pay the same level of interest.
I would open a high interest account, pay the minimum repayment to the cc (£80 is the first month if you repay 2%) and save the other £253.33 in your savings account. After 12 months repay the card- although I personally would do it in 12 months to be sure I didn't get charged! (An extra £30 a month).

I would then phone up the mortgage company and find out how they calculate interest. If it is calculated for the year in advance and just applied monthly there's no point paying into it until the end of the first year. If you saved £275 per month towards your mortgage (in a separate account from the cc repayment for ease) then you ought to be in roughly the same position as you would be with a straight repayment.
I've got my rough figures from www.whatsthecost.com and would recommend you go and have a look.

I would highly recommend that if you can penny pinch sufficiently to go repayment and clear the cc you should do that.

You may find it worthwhile to post this on the mortgage free wanabee board too.
Sorry for rambling, good luck!

WTF?_2

TedLaRue wrote: »

Hi all

I'm currently undecided as to what to do with my debts, so was wondering if any of you have and advice or have been in a similar situation.

My mortgage is just over £180k and have just remortgaged onto a 5.99% fixed deal for two years. It is on an interest only basis. I also have £4k on a 0% credit card which runs for the next 11 months.

Prior to remortgaging I had budgetted to repay it on a repayment basis so have the money each month to do so.

My quandary is do I leave it on an interest only deal and put the extra money into savings (potentially earning a higher % than the 5.99% I'll be paying back) which I can pay off as a lump sum after the two years? Or do I use the extra money each month to get rid of the credit card debt? Or finally shall change my repayment options on the mortgage and pay off both that and my credits card (this would mean a bit of penny pinching elsewhere!)?

Sorry for the ramble but I'm looking for the best way to pay off as much of my debts as possible over the next two years.

Thanks in advance

You have to make sure that the credit card is cleared of that 4k at the time the 0% deal runs out.

However, you don't have to do that until literally the last day of the interest free offer (obviously, make sure the transfer goes in in time to pay it off, bearing in mind that they can take 4-5 days to clear!!!)

To pay off the card, open a savings account with 'instant access' and a monthly payout (and a good rate of interest of course). Put all the money towards the CC debt in there and use it to pay off the card at the end of the 1 year period.

If you can afford to go repayment on the mortgage and pay the card before the interest free deal is up then go for it. IMO A repayment mortgage usually makes more sense for the average buyer.

Otherwise wait until you've got the 4k for the card payment and cleared it - and then think about switching.

Bear in mind you'll probably have to pay arrangement fees for a new mortgage deal, so maybe wait until the fix is up as you'll be wanting to re-arrange then anyway.