What order to sort things?

Snugglepuss

Hi


I wasn't sure which board to put this in so I'll start here and see what happens.


The headline is I'm now (as of 2 weeks ago) looking at getting a mortgage within the next 6 - 12 months, which means I need to change how I deal with my finances.


At the moment I have a total of £6k debt, of which £4k is on a 0% credit card, and £2k in a 3.4% loan. The credit card debt is deliberate given the 0% deal, and I've got a savings plan to store the equivalent value (at 5% credit interest on a special offer) so it can be cleared in full at the end of the 0% deal. I was planning on clearing the loan within the next 3 months anyway.


However - as I'm now looking at a mortgage potentially, this needs to change the way I've been using 0% deals etc - as having a credit card maxed out looks bad for that, even though there are corresponding savings against it.


My question is - I've been focusing on clearing the loan first because of the interest cost, but as I'm looking at a mortgage would I be better leaving that on the normal repayment scheme for the moment and clearing the card first? It goes against the grain to pay interest etc, having spent the last few years stoozing across 0% offers - but for a mortgage application having high use of credit card I know looks bad, whereas the loan doesn't matter so much.


To be fair I can clear both by August anyway - but I wasn't sure if I'd be better having the card clear for longer for a mortgage application (which might be any time from October)? Does it make that much difference how long its clear for before you apply?


Any advice welcome so I can prioritise which I clear first.


Thanks.

[Deleted User]

Clear the highest interest bearing debt first.

ashp_2

As above. Highest interest first.

I recently took out my first mortgage having just paid off a loan but still a maxed 0% credit card. So ideally you want it clear but I don't think you need to wait much once cleared.

Chappaz

Total credit utilisation is more of a factor I'd say, i.e. the total percentage of credit against your combined limits across the cards.

Do you have any other cards, or is the maxed out one the only one available?

If you can clear both though, do that and clear the debt with the highest interest first just to save some cash. If you end up clearing both a good few months before your application it's unlikely to make a difference. As far as debt burden goes, they care more about your financial situation at the time of application moving forward, providing there aren't any black marks in the prior history.

But before you apply, check all three of your credit files just to make sure that the lenders have updated the accounts to show they're cleared. It doesn't always happen instantaneously.

Snugglepuss

Thanks all. I'll carry on as I was and clear the loan first then.


I've got 1 other card with a £2k limit that I don't really use - and if I do it's paid in full every month so I don't pay interest. (That one covers things that are useful to have paid by credit card rather than because I'm using the credit facility).


I always check all my files regularly anyway - I've just re-checked and I'm showing a low score because of my high credit utilisation (that 1 card is 98% used) - but that will get cleared now I'm changing my goals.


Thanks.