Overpay on mortgage or clear credit card?

shopping_addict

Hi,
Ive been trying to sort out my finances this week and now have all of my debt on a 0% credit card until May 2017. Ive also just switched my mortgage deal to a 2 year fixed at 2.53%.

Anyway, my original plan was to continue paying the mortgage as normal, and pay £300 a month off my credit card a month to have it cleared by the end of the 0%, then after that start to make overpayments on my mortgage.

Would it not make more sense for me to pay the minimum (or slightly more) off my credit card whilst its on 0% and put the rest say £200 as a monthly mortgage overpayment? It seems obvious now im typing it, as the best way to clear debt is to pay the highest interest debts first isnt it?

I'm just having second thoughts because although my mortgage debt is obviously much higher than my Barclaycard debt....dragging the credit card debt out longer than necessary just doesn't sit right with me, as my aim has always been to clear them and get rid.

Any advice?

questionss

I'd clear the CC - several reasons...
What if you can't get a 0% deal to transfer too when your current balance runs out. Even if you can get a 0% BT deal you'll still have to pay up to 3% as fees to transfer.
If you need to get another mortgage/sell & move etc the outstanding CC will affect affordability.

getmore4less

MIn payment on the CC

Look at the max you can save overpay and work back from when the 0% runs out and start saving then in the best savings you can find.

Upto that date overpay the mortgage

If you can get a 0% spend card in a few months that will allow you to increase the savingsoverpayment rate for a while.

with a mortgage rate of 2.55% BT fees make any CC debt movement more expensive unless you find a lower fee(hense the spends card)..

RavingMad

If it was my dilemma (which it sort of is, as I'm in the same kind of boat) I'd pay it off the mortgage.

I'm fairly confident that between my wife and I, we can get another 0% credit card deal when the time comes. Plus, the max transfer fee is around 3% over 30+ months which is less than my mortgage rate. I've just got an AA card which is fee free for 22 months.

Westminster

I would do neither.

Get yourself a high rate savings account - such as the 12 month 6% regular saver from First Direct.

This is a better rate than your CC and Mortgage.

Pay the minimum amount on your CC (or adjust it so it is ever so slightly more than the minimum payment if you like - this way it won't be recorded as 'minimum payment' on your credit file).

Then put any extra money you have into the savings account.

When the account matures on its 12 month anniversary, you will get your 6% interest added to it (and in case of dire emergency in the meantime, you can still access the funds instantly but won't get your full interest).

You can use the matured savings account to pay off the CC when the 0% is up and will have earnt more interest than you will be saving from over paying your mortgage.

RavingMad

A great idea in theory but looking at the First Direct savings account and you need to have a FD 1st account in place beforehand, of which £1000 pm has to be deposited into it.

Unless the OP already banks with them, it seems a bit of faff just to save themselves a few bob.

Perhaps, look at savings rate with your own bank and see if Westminister's idea stacks up?

AnotherJoe

There are similar 4-5% rate accounts around that don't require additional accounts so Westminsters idea would still work.
And given that at some point the 0% cc merry go round will surely come to an end, I think the OP should consider, at the least, building up a savings account that contains enough to pay the cc debt off and even if he doesn't pay it off, maintain it so he can consider it paid off.
Once that's at the same size as the cc debt, then start on the mortgage.

That's if every last penny counts. If it doesn't, whilst in theory I agree you should pay off higher interest first, i agree about not dragging the cc debt out, and I personally would feel better getting rid of that.

It will also be an "accomplishment" in that they will be down to one debt rather than two much quicker than if they focus on mortgage first, otherwise they might still have that debt for the life of their mortgage, plus it's one less thing to worry about when it's gone.

shopping_addict

Westminster wrote: »

I would do neither.

Get yourself a high rate savings account - such as the 12 month 6% regular saver from First Direct.

This is a better rate than your CC and Mortgage.

Pay the minimum amount on your CC (or adjust it so it is ever so slightly more than the minimum payment if you like - this way it won't be recorded as 'minimum payment' on your credit file).

Then put any extra money you have into the savings account.

When the account matures on its 12 month anniversary, you will get your 6% interest added to it (and in case of dire emergency in the meantime, you can still access the funds instantly but won't get your full interest).

You can use the matured savings account to pay off the CC when the 0% is up and will have earnt more interest than you will be saving from over paying your mortgage.

Thanks for your advice, I hadnt even thought about the option of a savings account but its something I will look into now. I just switched my current account from Santander to Halifax yesterday so have missed out on the First Direct option now but I will have a look around see what else I could possibly do..... :beer:

shopping_addict

AnotherJoe wrote: »

There are similar 4-5% rate accounts around that don't require additional accounts so Westminsters idea would still work.
And given that at some point the 0% cc merry go round will surely come to an end, I think the OP should consider, at the least, building up a savings account that contains enough to pay the cc debt off and even if he doesn't pay it off, maintain it so he can consider it paid off.
Once that's at the same size as the cc debt, then start on the mortgage.

That's if every last penny counts. If it doesn't, whilst in theory I agree you should pay off higher interest first, i agree about not dragging the cc debt out, and I personally would feel better getting rid of that.

It will also be an "accomplishment" in that they will be down to one debt rather than two much quicker than if they focus on mortgage first, otherwise they might still have that debt for the life of their mortgage, plus it's one less thing to worry about when it's gone.

I usually get 0% offers fairly regularly so tend not to worry about that but I suppose anything could happen in the future and as you put it the 0% merrygoround could come to an end leaving me potentially worse off than I am now.

The thought of reducing credit card payments does make me uneasy but I have to keep thinking it will be benefiting me in the long run reallocating the money to my mortgage...then there is the savings account option to considor...

I have a few things to think about now...thanks for your help :beer:

getmore4less

0% has been around for years, just the cost has gone up with the fees.

if anything the deals have been getting better with longer periods. now some are over 3 years.

Stoozing(the term used for making money of 0% deals) was born Feb 2004 but the offers had been around before that going back into the late 90s .