Use CC to clear overdraft before mortgage application?

twicebittennotshy

Hi,

Advice needed please.

I am trying to improve my finances ahead of searching for a mortgage to fund a home move next year. I have significant CC debts which I am slowly paying down and use almost my full overdraft facility each month, and have done so since first getting into financial difficulties. I am currently living within my means but have been focusing my efforts on my CCs and have ignored my overdraft. If I switch my modest overpayments (by which I mean payments above the minimum repayment) from my CCs to my overdraft it still won't enable me to live overdraft free before I apply for a new mortgage. I have sufficient equity to clear my CCs in full at the time of the proposed house move and still stay below 75% LTV for the new mortgage (assuming I can borrow the figure I'm hoping for).

My questions is therefore should I use the 0% cash transfer one of my CCs has offered me to clear my overdraft, remove the overdraft facility and maintain a positive, although sometimes close to zero,balance on my current account, or should I keep the CC balances as low as possible but still be regular overdraft user? Which option is better / least damaging to my mortgage application prospects?

Thanks in advance.

thriftylass

When we applied for a remotgage with N@ati0nwide last year all they cared about was that I had £700 on a CC (despite being 0%, which they didn't even ask). The fact that my husband was living in his £2000 OD that cost about £30 a month didn't matter at all. So in our case it made sense to pay the CC off and keep the OD.

nosebag

You don't sound like you're living within your means if you're constantly in overdraft and have a CC balance.

I'd clear OD completely, stop dipping into it, and make at least min payments on CCs before applying for a mortgage (even if you are planning to pay off the CCs when you sell your current property).

I'm nowhere near an expert though, just common sense here...

twicebittennotshy

nosebag wrote: »

You don't sound like you're living within your means if you're constantly in overdraft and have a CC balance.

I'd clear OD completely, stop dipping into it, and make at least min payments on CCs before applying for a mortgage (even if you are planning to pay off the CCs when you sell your current property).

I'm nowhere near an expert though, just common sense here...

I am in this position because I was not living within my means - I now am. I make all of the minimum payments each month, and a bit more, and any spare cash goes to the CCs rather than paying down the overdraft. or being put into savings.

Alice_Walker

thriftylass wrote: »

When we applied for a remotgage with N@ati0nwide last year all they cared about was that I had £700 on a CC (despite being 0%, which they didn't even ask). The fact that my husband was living in his £2000 OD that cost about £30 a month didn't matter at all. So in our case it made sense to pay the CC off and keep the OD.

Is there something wrong with your keyboard? Do you mean Nationwide?

nosebag

You're not - you're in overdraft constantly and have high CC debt. Do you have savings to cover all that?

I'm not in my overdraft but I have CC debt which I don't clear in full every month (and my savings are less than the CC debt) - so I don't think I'm living within my means either...

twicebittennotshy

nosebag wrote: »

You're not - you're in overdraft constantly and have high CC debt. Do you have savings to cover all that?

I'm not in my overdraft but I have CC debt which I don't clear in full every month (and my savings are less than the CC debt) - so I don't think I'm living within my means either...

Ok, so we're getting into the semantics of how we each define 'living within my means'. For the purposes of this discussion I defining it as 'my salary covers all of my normal current fixed and variable outgoings, enables me to meet all required debt repayments, means that my total unsecured debt is decreasing each month and still leaves me with a small surplus'.

That doesn't change my original question though. Which looks least bad to a mortgage lender - £2k less on my CCs and a £2k overdraft nearly maxed-out each month, or a current account that is always (from now onwards) in the black with an additional £2k of CC borrowing that will be cleared from equity at the time of remortgage?

And yes, I know that lenders would prefer lower/no CC debt and no overdraft, and that from a purely financial perspective it would be better to put off moving house until all debts are cleared, but as these aren't viable options I'd prefer not to discuss them further at the moment and stick to the scope of the question asked.

ThePants999

FWIW I agree with the OP. "Not living within your means" implies spending more than you earn. If you are currently spending less than you earn and you expect that to continue, you're living within your means, even if you have debts (and potentially even a negative net worth). Whether you have a comfortable current situation in terms of assets and liabilities is reflection on whether you have previously lived within your means, not whether you are right now.

Sorry for continuing to be off-topic

Thrugelmir

Living within ones means when heavily in debt is only a current state. Only takes one of the three D's to strike, Death, Divorce or Distress (financial). For the situation to change rapidly.

Pay the minimum to on your credit cards and the remainder to clear your overdraft. Use savings to clear your overdraft as well. Then tackle the credit card with the highest rate of interest next.

Whatever your equity in your existing property. Lenders will analyse your past 6 years credit history in detail. All part of profiling you.

twicebittennotshy

Thrugelmir wrote: »

Living within ones means when heavily in debt is only a current state. Only takes one of the three D's to strike, Death, Divorce or Distress (financial). For the situation to change rapidly.

Pay the minimum to on your credit cards and the remainder to clear your overdraft. Use savings to clear your overdraft as well. Then tackle the credit card with the highest rate of interest next.

Whatever your equity in your existing property. Lenders will analyse your past 6 years credit history in detail. All part of profiling you.

Thanks for the comments Thrugelmir - you're right about the current state and I'm vividly aware of its precariousness.

Does your suggestion to prioritise the overdraft over the credit cards extend to the balance transfer too, or would you advise transferring the highest APR card to the 0%? Both options free up around £50 per month which can then be diverted to either CC over-payments or OD reduction.

Westminster

twicebittennotshy wrote: »

Ok, so we're getting into the semantics of how we each define 'living within my means'. For the purposes of this discussion I defining it as 'my salary covers all of my normal current fixed and variable outgoings, enables me to meet all required debt repayments, means that my total unsecured debt is decreasing each month and still leaves me with a small surplus'.

Having only a small surplus is not ideal as mortgage applications have to be stress tested to assume reasonable interest rate rises (the figure of 7% APR rings a bell). So your small surplus needs to be sufficient to comfortably cover repayment at that higher rate.

Have you plugged your numbers into some lender affordability calculators to see what they think you will achieve for a mortgage?

If you have any savings then its, probably better to use those savings to clear all of your CC and overdraft debt and then concentrate on building your savings back up.