Pay Debt or Mortgage 1st?

mouseclick

Hello all. I introduced a friend to this forum, I was impressed with the response, I thought maybe I should ask for some initial advice. I am not in any immediate or imminent danger though, but realise that life without debt is probably a good thing.

I am single, early 50s, no kids, no dependants. I have an "ill health" retirement pension (though I was never ill - long story) of around 6k a year index linked. I also sell stuff online, I probably earn around £8k a year from this but could easily beef that up if I wasn't so lazy. Or perhaps if I were not so green (I feel genuinely guilty about turning our planet's resources into junk to sell to people at a profit).

My mortgage is an endowment one ending 2014 (I think). It will have a shortfall. I live in a small place in S London, mortgage £30k.

Credit card debts probably around £21k. They are ALL 3.9 or 4.9% APR for life of balance. Split is about 50/50 I think.

I have plenty of time on my hands if I can find the motivation to make changes. I don't spend a lot, in fact I have become a bit of a minimalist. I am happy on food, sat TV, fast Internet, a cashback contract mobile phone, a few good friends, a cheap car and and a garden. Oh and some rose wine (perhaps too much sometimes).

If I do take the plunge, 1st question is, should I try to be mortgage free or debt free first? If the answer is mortgage maybe I should post in the other forum?

I have not prepared an SOA yet, but know how to - just not sure in which forum to post it!

CLAPTON

pay the debt with the highest APR first.

mouseclick

CLAPTON wrote: »

pay the debt with the highest APR first.

and, the mortgage is of course secured on property. Credit cards are fixed interest, mortgage variable. Mortgage with Nationwide. I feel safer paying off the mortgage.

So should I post in mortgage free wanabees?

I will wait a while before I get a few opinions

pania

hiya mousey, Rose wine!!! Hmmm a man after my own heart!
OK, chances are with a variable rate mortgage you are paying over the odds on the interest rate. Are you able to remortgage (ONLY for the outstanding mortgage amount!) to a more preferential rate? this would give you the stability you need to be able to concentrate on the unsecured debt.
Are you able to amalgamate any of the cards? Ie do you have any surplus balance on the lower APR cards to transfer the higher APR card balance to and therefore get rid of atleast one extra interest rate?

Try www.whatsthecost.com will show you which should be your priority debt but Definately get shot of the unsecured stuff first!!
Also on the mortgage free wanabee board is a thread called mortgage free in three, Maybe join that for some inspiration!

It is possible to get rid of this debt, and really good luck. if we can help further let us know.
Kind regards
P
xx

ManAtHome

The credit card debt is cheap - lower than savings rates even after standard-rate tax. You could certainly profit by putting money into an ISA (eg National Savings Direct ISA at over 6% tax-free) rather than paying off the cards. Could always withdraw it and pay the cards if rates drop below 4.9% - could be a bit of a wait...).

Sorry, don't know much about endowments, so dunno whether you can repay capital (or overpay monthly).

mouseclick

Nationwide Mortgate Interest Rate History:
01 January 2007 6.49%
01 February 2007 6.74%
01 June 2007 6.99%
01 August 2007 7.24%

Ouch, that's sneaking up. I sympathise with others who have much greater commitments.

Main Mortgage
Current Payment £116.30
Balance Outstanding £19975.69 Agreed Redemption Date August 2014
Repayment of Interest Only on £19,500.00 remainder on Capital and Interest

Further Advance
Current Payment £61.95
Balance Outstanding £10554.98 Agreed Redemption Date August 2014
Repayment of Interest Only on £10,250.00 remainder on Capital and Interest

Endowment Policy originally With Royal Sun Alliance £36.97

Total Mortgage Payment £178.25
Plus £36.97 Endownment
Grand Total £215.22

I had first better look at the mis-selling of the endowment policy. I am out of time, but I can appeal to the Financial Services Ombudsman. There may also be an issue with Nationwide overcharging on interest a while back (according to a friend who is an actuary, he examined my mortgage statements).

So far I am thinking tackle the mortgage first, and unless anyone says anything to the contrary within the next couple of days then I guess I ought to end this discussion repost this on mortgage free wanabees, am I correct in thinking that is what is best to do?

mouseclick

pania wrote: »

hiya mousey, Rose wine!!! Hmmm a man after my own heart!

Hi Pania! Hehe, yes, I acquired a taste for this a few years ago, when on holidays in the med. Last night I was thinking... how can I save money on that? Well I already get 1000 Tesco points for every £50 I spend at Tesco wine (worth £40 in deals), but casting my mind back to my student days... I may go and check out Boots homebrew kits!!

Regarding your other comments, thanks, I will check them all out. I can't do any better on the cards though. You don't get those deals these days, they are in a drawer with post-it notes - "Do not use" But I think it is best to tackle the mortgage first, don't you agree?

mouseclick

ManAtHome wrote: »

The credit card debt is cheap - lower than savings rates even after standard-rate tax. You could certainly profit by putting money into an ISA (eg National Savings Direct ISA at over 6% tax-free) rather than paying off the cards.

Yes, I agree. So even if I cleared the mortgage, it would still be foolish to pay off the cards, because I could make more money by investing any extra money in savings with higher interest.

GettingThingsDone

Hi Mouseclick. I'm guessing I may be telling you how to suck eggs, but here goes...

As you have all of your cards on LOB deals, I would be tempted to treat all of the individual debts as just one debt. Put all of the individual cards and mortgage into the snowballer and put in a realistic amount that you can pay monthly in and see what date comes out.

This may force the issue of remortgaging (for the same amount as your current mortgage) to get a better rate. Also, can you make overpayments, are you on daily interest etc? Also, on the endowment front - how much is it worth? What's the projection? What's your confidence in the projection ? I would deduct the 'worst case' figure from your mortgage figure, but I'm not sure it is right to do that in the snowballer as it will probably generate the wrong figures because you will be paying off a lump at the end of the term.

This will give you the optimal 'objective' payment schedule - if you wish to deviate from it (maybe to pay off a CC card) at least you will see the impact. The other benefit may be that once you see your DFD then it spurs you on to get selling more on ebay (maybe something 'green'?), carbooting or whatever you need to do bring that DFD closer. How about a lodger, for example? (although I don't fancy the idea myself!).

Re: Rose - it is so cheap and lovely already, I personally wouldn't go down the homebrew route. Are you going to Tescos via quidco?

I think your instinct is right to pay off the mortgage. Quick question though, would you consider downsizing or relocating?

gtd

mouseclick

Hi GTD, there are always things I can learn!

GettingThingsDone wrote: »

As you have all of your cards on LOB deals, I would be tempted to treat all of the individual debts as just one debt. Put all of the individual cards and mortgage into the snowballer and put in a realistic amount that you can pay monthly in and see what date comes out.

I can see that this forum has developed quite a lot of terminology and I am going to have to learn it. Not sure what a snowballer is, I presume it is some kind of financial calculator as opposed to the urban dictionary definition (don't look! :snow_laug).

I need to do a budget for sure, or a SOA, and post it into the appropriate forum (mortgate free/ debt free) then work out what extra I have to earn on top of the pension money I get. The cards will be easy to do. Question is though do I pay them off? I think not. I would be better off with £20k in savings and £20k on those cards, that will generate income, provided the interest rates remain above what the cards are. However, I should probably work out how much at 3.9% and how much at 4.9%, then treat those sepeartely. So in that respect I guess I am not a debt-free wannabe. However, it would be a nice re-assurance to have savings to cover the card debt.

I also have a guaranteed income that increases with inflation. I do appreciate how lucky I am to have that for sure. But it does tend to make me a bit lazy.

Regarding the mortgage, I need to check that with Nationwide. I also think I should get all my statements together (may take a week or more) to check this potential interest rate error, which could be worth a few thousand quid apparently. It may be best I stay with Nationwide until I clear this up. If I have a valid claim against them, it may be more difficult if my account has been closed, for the sake of a few weeks.

GettingThingsDone wrote: »

Also, on the endowment front - how much is it worth? What's the projection? What's your confidence in the projection ?

It's pretty poor apparently, I don't have the figures to hand, but I think there could be a shortfall of 5 to 10k on the £28k it is supposed to produce. I know this cos I piggy backed some advice during a friends financial advice session with an IFA. He told me 1st to complain to the Financial Ombudsman to see if I can still claim even though I was time barred. However to do that I need a time barred letter, and Phoenix, or whoever they are now, have promised twice to give me a letter but it has not arrived. I need to chase them.

GettingThingsDone wrote: »

The other benefit may be that once you see your DFD then it spurs you on to get selling more on ebay (maybe something 'green'?), carbooting or whatever you need to do bring that DFD closer. How about a lodger, for example? (although I don't fancy the idea myself!).

Too small for a lodger, it's a studio, probably worth about £80k (guestimate). So downsizing is out, though relocating somewhere nice, and perhaps upsizing would be nice. But for now I am quite happy here.

By the way the thought of a Debt Free Day is something new to me. I guess I am going to have to find out what a snowballer is first though to work it out! For me though I think a DFD will mean savings >= LOB card debts.

GettingThingsDone wrote: »

Re: Rose - it is so cheap and lovely already, I personally wouldn't go down the homebrew route. Are you going to Tescos via quidco?
gtd

18 Aug 2007 Tesco.com 44.62 3.57 validated ~ Nov 2007

The white wine I made when I was a student was nicer than some of the stuff in shops. But perhaps not a good idea to have bucketfuls of cheap wine available at any time!!

I think I am going to start by looking through my direct debits and see what I can cut down on. I think Sky movies can go, I hardly watch it. But I really like the sky plus box so may keep the basic channels as Sky plus now free, ho hum... we will see...

CLAPTON

to snowball means to pay the minimum on all your debts except the one with the highest APR (in your case the mortgage) ..on that one pay as much as possible. This way you pay off your debts in the fastest time and pay the least interest.