Overpay mortgage instead of credit card?

chelseablue

Apparently I've been missing a trick and instead of paying off my 0% credit card quicker I should be overpaying my mortgage and increase savings instead.

Background:

I'm 35 and have only had a big balance on my credit card for about a year (had a credit card since I was 18)

Current balance is £8,000 and is 0% until 2021

Last month I paid £800 off of it plus saved £500 into savings account (not all my own work, husband works full time too)

Outstanding mortgage is £214,000 at 1.79% for another 4 years

I desperately want to move house one day so I thought maybe we would be better off overpaying the mortgage instead? To have more equity to put down on the next house

Thinking of doing £500 as an overpayment and £500 to savings

I could have the credit card running down at minimum payment (or say a fixed amount of £100)
Obviously it would take 6 years (at 0%) to pay it off this way, but I get a £3,000 bonus in March so would send that to it

Can anyone advise if there's any obvious flaws to my plan that I may have missed?

muhandis

In your place -

I would not make overpayments to my 1.79% mortgage. I would find a savings account (https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/) that pays me 1.79% or more, put any excess funds in there and use that to repay the debt on my credit card when the 0% period comes to an end.

Money you put into a mortgage can be very hard to get back out and to avoid racking up huge interest charges on your cc at the end of the 0% period, you need to know where the money to pay it off is coming from.

chelseablue wrote: »

Apparently I've been missing a trick and instead of paying off my 0% credit card quicker I should be overpaying my mortgage and increase savings instead.

Background:

I'm 35 and have only had a big balance on my credit card for about a year (had a credit card since I was 18)

Current balance is £8,000 and is 0% until 2021

Last month I paid £800 off of it plus saved £500 into savings account (not all my own work, husband works full time too)

Outstanding mortgage is £214,000 at 1.79% for another 4 years

I desperately want to move house one day so I thought maybe we would be better off overpaying the mortgage instead? To have more equity to put down on the next house

Thinking of doing £500 as an overpayment and £500 to savings

I could have the credit card running down at minimum payment (or say a fixed amount of £100)
Obviously it would take 6 years (at 0%) to pay it off this way, but I get a £3,000 bonus in March so would send that to it

Can anyone advise if there's any obvious flaws to my plan that I may have missed?

[Deleted User]

chelseablue wrote: »

I could have the credit card running down at minimum payment (or say a fixed amount of £100)
Obviously it would take 6 years (at 0%) to pay it off this way, but I get a £3,000 bonus in March so would send that to it

Can anyone advise if there's any obvious flaws to my plan that I may have missed?

The main flaw is if/when you're unable to BT the debt to another 0% deal.

It wouldn't take many months of being charged a 20% APR to wipe out any gains from paying down a 1.79% APR debt.

chelseablue

Deleted_User wrote: »

The main flaw is if/when you're unable to BT the debt to another 0% deal.

It wouldn't take many months of being charged a 20% APR to wipe out any gains from paying down a 1.79% APR debt.

I do have another credit card that has a £12,000 limit and zero balance, had this card for 12 years and there is always a 0% BT offer there so could transfer it over to that one in 2021

Credit file is excellent so don't see a problem getting a 0% deal with another provider if I had too

muhandis

In any event, given that your mortgage is at a relatively low interest rate of 1.79%, it should be quite easy to find avenues for savings which pay more than that, with the added benefit that you have access to the money if need be.

There's no functional difference between overpaying a mortgage at 1.79% or putting those funds in a savings account which pays 1.79%. All this is assuming you haven't used up your tax free interest allowance of course.

Even with respect to a home move, you would be no worse off as any accessible funds in savings could be used to add to your deposit on the house you're moving to (on top of the equity in your current home).

chelseablue wrote: »

I do have another credit card that has a £12,000 limit and zero balance, had this card for 12 years and there is always a 0% BT offer there so could transfer it over to that one in 2021

Credit file is excellent so don't see a problem getting a 0% deal with another provider if I had too

[Deleted User]

chelseablue wrote: »

Credit file is excellent so don't see a problem getting a 0% deal with another provider if I had too

I understand that, but it only takes a missed payment, a loss of income or a tightening of lending criteria to scupper the best laid plans.

chelseablue

Deleted_User wrote: »

I understand that, but it only takes a missed payment, a loss of income or a tightening of lending criteria to scupper the best laid plans.

Very true!
I have all my payments set up via direct debit so shouldn't miss a payment that way.

Loss of income would be a problem of course, all our basic outgoings could be covered on one persons salary (hopefully we wouldn't both suffer job loss at the same time fingers crossed!)

I do have £6,500 in a S&S ISA that is my life or death emergency money that I never touch and add £100 a month too so could use that if I absolutely had too