Deposit VS Debt

Rout

Morning all, just a quick question.

I am currently not on the property ladder, but hope to be by mid 2008.

I have debt of around £15k, all at 0%, which by mid next year will be around £9K. I am now saving up for a deposit for a property, and again by mid next year that will be around £5k saved.

Would it be best to pay more from debt (leaving £4k owed) and have no deposit, or as debt is at 0%, save the deposit and have slightly more debt?

Thanks in advance,

Michael.

MrShed

I would state the second option. It is generally accepted that 0% debt should be paid off as slowly as possible, as in REAL TERMS(ie against inflation), the debt actually grows negatively.

Running_Horse

Is it just me?

This is the third discussion in the last couple of days where someone with debts above £10,000 and no deposit wants to buy a property. Given the current market it would be unwise to buy anything without a big fat healthy deposit. But if you can manage it then best of luck to you. I hope it works out for you.

It must just be me who thinks you should be debt free and have a deposit before taking on a mortgage. I must be completely out of step with modern thinking.

MrShed

Unfortunately RH, it is just not always possible these days. Consumer debt is at an all time high, and so are house prices. I agree that you SHOULD, but it is not always feasible.

Besides, 0% debt is not really classed as a "debt" at all by financial advisors, as the key area of being in debt is the interest repayments, and these are non existant.

Generali

Running_Horse wrote: »

It must just be me who thinks you should be debt free and have a deposit before taking on a mortgage. I must be completely out of step with modern thinking.

It's simple. Buy a house with debt.

Buy a flash car, big TV, regular holidays, restaurant meals and as much drink as you can force down your throat, all on your credit card.

Then you increase the mortgage to pay off your cards and start again.

When you get old, you sell the house for a huge profit and that's your pension too.

Of course, the more debt you can take on when you buy the house the better because the bigger the debt, the bigger the profit.

What could possibly go wrong?

ixwood

You should really have no debt and a deposit.

ixwood

Shed, I'm 30 with a nice place, plenty of equity and no other debts. Debt isn't obligatory. It's a choice. A lot of people juts happily go with the flow and spend beyond their means. Usually on rubbish, or sadly keeping up with the Jones.

MrShed

ixwood, you are of course correct, and I have no comeback to that.

My only reservation is that we shouldnt be saying "oh, you are in debt, that was your choice". It is a bit late now for the people concerned. I think that should the person have debt, but fully under control(ie the minimum payments are being made MORE than comfortably), especially in the case of 0% interest, I see no reason why the person cannot look to get a mortgage.

ixwood

0% is different I suppose, although it does suggest overspending (albeit doing it the best way possible) and will need to be repaid at some point. And in the coming credit conraction is it going to possible to keep it at 0%?.

fair enough, if you're in debt, just pay it off 1st. Best and safest option in a non rising market

With the end of the bubble coming sometime in the next 2 years , it's defienitly the best plan IMHO.

ixwood

There was a thread ion here about someone who had been made redundant, but had rece3ntly became debt free. She was SO glad she didn't have the debt to add to her significant troubles.

ixwood

Also, with the potential near term problems ahead, a mortgage alone is a worry for me and I'd say I'm in a better position than many.

The credit crunch/contraction and economic slowdowns have eased pressure on IR, but mid to long term I can only see them going very high.

China can't export deflation for much longer, peak oil is now pretty much accepted (meaning the energy that our society is built on is going to go up and up for our lifetimes at least.), we can't prosper at the expense of poor countries as much any more as they're developing too.

Not to forgot the £/$ press being in warp drive for years. Main cause of inflation.

I'm looking to be mortgage free ASAP and before then fixed in for 5-10 years.

hopefully we'll get a couple of short term IR cuts in the new year to ease the current short term problems and I'll be jumping on a long fixed rate.

Ditch your debts!!