Help! Not sure of the best thing to do with inheritance

BBSR

Hi Everyone,

My wife and I have unexpectedly come into an inheritance of 23K. We have never had a lump sum of this kind of cash at once before and are unsure of the best way to utilise it.

We have booked an appointment for some financial advice but I also wondered if the brain power on this forum could help us.

Here's a brief look at our situation.

I earn 25k a year.
My wife earns 17k a year.

My wife has a loan she is repaying at £200 a month, she has £7600 to pay back or £7000 if we pay it all off in a lump now.

She has credit card debt of £2000
I have credit card debt of £6000 (there's no interest on this until June next year)

The only significant savings we have are £4000 in a Help to Buy ISA.

As you can probably guess from the Help to Buy ISA we're hoping to buy a house in the next couple of years. We have in fact just moved to a rented property 2 months ago (on a 6 month contract) with the intent to save up for about 2 years and then start looking (with the remaining deposit potentially coming from the bank of Mum and Dad) and then lo and behold the deposit for a house appeared suddenly, complicating the plan.

Potential things we thought we could do.

1. Pay off all our debt.

This would leave us with 9k + my 4k for 13k towards a house. We'd have to save up to get the remaining 7-10k but with my wife no longer paying a loan we could save the maximum £400 a month into the Help to Buy and get that saved in 2-3 years.

And we'd have to find somewhere to put the 9k where we can get it back quick enough but where it will do some work for us in the meantime.

2. Go buy a house now

We've previously discussed a mortgage for a 200k property with our bank and the rate we'd pay would be approx what we pay in rent.

We haven't actually applied for a mortgage though and my understanding is that we'd have a much easier time of it with all our debt paid off than with existing debt hanging over us.

We'd then use that £400 a month towards paying debts back.

But the main thinking with this is, we have the money for a deposit now, why wait and save again? Especially when interest rates could change and when renting is throwing good money after bad.

3. Invest all of it.

I haven't done any research but is there the possibility that, because of the size of the sum, we could make more interest on it by investing it than the credit card debt currently generates, use the interest to pay off debt for a couple of years then buy a house?

4. Something obvious that I've missed?

Any help you could offer would be greatly appreciated.

Robin9

Enjoy some of it !

Linton

What is the interest on your debt?

vouch0r

If you are paying interest on your debt pay it off now!
dont pay someone else 16% apr while you are earining 2% on your own money.

if interest free, pay it off when you need to while earning interest on the money and leave the rest to a house deposit?

you mentioned a 200k property, have you been to the bank for a loan in principle and willing to lend with so much debt on your salaries?

invest is defo a NoNo, unless you can commit to 5-10 years i would advise against it.

BBSR

Loan and my wife's debt both have interest. Mine currently has no interest but will next year.

So it make's sense to pay debt when it has interest but use the money to save otherwise? Good thinking. Any advice on the best place to save it? ISA?

BBSR

Yes, we've had a mortgage in principle for 200k from our bank.

eskbanker

BBSR wrote: »

Any advice on the best place to save it? ISA?

Have you considered moving from HTB ISAs towards Lifetime ISAs?

Higher annual limits from which to earn 25% government bonus, you'd be able to get £16K into these (bolstered to £20K with bonus) within a year (minus whatever you've already paid into HTB since 6 April 2017) so it might just get you onto the property ladder sooner....

justme111

Pay the part of debt that cost you interest. Put £5000 in "high" interest saving accounts - 2 nationwide (one for you one for mrs) £2500 each at 5 %. Remainder in either HTC or LISA Look for the house. Have a bottle of bubbly in remembrance of whoever left it to you. Be good. Good luck.

JessaEra

Its really realistic to get out from all your debts. The freedom from debt is incomparable because you will have no problem at all thinking of money to pay it all. Besides, if you mismanage the money you have right now and you were not able to paid all your debts yet, it will just worsen your life condition. Its better if you will be worry free already and live with all your means. Start saving out from the money you have and be free from all your credits. Then, the money left from you which is already your savings, will then be invested into a profitable cost. Manage your money well.

kidmugsy

BBSR wrote: »

renting is throwing good money after bad.

Not necessarily; it's insurance against your buying a house and its value collapsing, or its needing hideously expensive repairs. I know people like to repeat that mantra, but it is, I'm afraid, rather stupid.

BBSR wrote: »

My wife and I have unexpectedly come into an inheritance of 23K.

My wife has a loan she is repaying at £200 a month, she has £7600 to pay back or £7000 if we pay it all off in a lump now.She has credit card debt of £2000

Dead easy: repay. That leaves £14k.

BBSR wrote: »

I have credit card debt of £6000 (there's no interest on this until June next year)

I'd be tempted to hold fire: maybe nearer next June you could take out a 0% card and transfer the debt. Or repay it then.

BBSR wrote: »

The only significant savings we have are £4000 in a Help to Buy ISA. As you can probably guess from the Help to Buy ISA we're hoping to buy a house in the next couple of years.

In your shoes I'd look into both of you opening a LISA: I gather that Skipton BS are the only firm offering a Cash LISA at the moment. So that's nearly £8k accounted for, leaving £6k (which equals the outstanding CC debt). Bung that capital into high interest current accounts (e.g. a Nationwide FlexDirect each) and put your surplus income into high interest regular savers (e.g. Nationwide Flexclusive). Save like mad and in a year's time you should have at least £14k from the LISAs and HTB ISA, plus the the money from Nationwide, minus (perhaps) the £6k CC debt. Impress the Bank of M & D with how sensible you've been, and then buy a house if you find one that suits you perfectly. If the perfect house is a bit too pricey, save a bit more.

bostonerimus

1) Adjust your spending so that you don't incur anymore debt.
2) Pay off all your debt......You could wait to pay off the 0% debt, but I think it's best that you just clean the slate and make sure you don't add to it ever again.
3) Put up to six months worth of spending into a savings account as an emergency fund
4) If you have anything left put that in a saving account or a LISA for the house deposit.
5) Save regularly towards your deposit.
6) If you can do this and you find yourself with a any spare cash open a stocks and shares ISA with Vanguard and put the money into something like a Vanguard Life Strategy fund.