FTB - Credit Card debt - advice on paying off one card or paying down debt on both

asm89

Hi

Looking for some advice as to which would look better for a future mortgage application please.

I'm looking to buy my first flat at the end of the year/beginning of next year likely through shared ownership - the deposit isn't an issue, but I do have some credit card debt (currently £14410) which i'm able to reduce at at least £1100 per month.whilst still saving a lot towards my deposit etc.

I earn £50k+ a year, and the debt comes from juvenile spending previously and a balance transfer from a loan. But over the last year I've gone hell for leather paying down the debt and should be debt free in just over a year. I no longer use credit cards for spending either.

Both cards are interest free.
Card 1- £4999 (limit £9000) - my current plan was to clear this by the end of November before i apply for a mortgage
Card 2 - £9410 (limit £12000) - my current plan was to pay £100 a month till December, then pay off at least £1100 a month till it clears

I've already passed financial assessments for shared ownership properties, with a debt of £9410 which i used as my total debt amount in the assessment - knowing it would be a bit less than this when i do apply,

My question is which approach for clearing my debt would actually look better on my mortgage application. Scenario 1- Having a balance on one credit card only or Scenario 2 - Having a credit card utilisation of <45% on both cards

Scenario 1 - I pay off credit card 1, and apply for a mortgage with a debt on Credit Card 2, of around £8910 (£12000 limit) - leaving a utilisation of >66%

Scenario 2 - I pay down credit card 2 more heavily (£900 a month) and credit card 1 with £200 leaving me with a total balance of £8910 (CC 1- £3999, CC 2 - £4910) - with utilisations of just under 45% each

Thanks

AdrianC

Whatever you do, you will still owe nine grand to credit cards...

Stop thinking of your finances as a lot of separate pots. Think of them as one single pot. How much do you have saved? How much interest are you earning on it? How much interest are you paying on your cards? This whole "separate pots" pretence is costing you a lot of money.

You earn £50k+ per year... That's at least £3,200/month. Yet you're only paying £1,100 of it off? How much of that is actually reducing the balance? Reduce your £2,000+/month of spending, and get it paid off ASAP!

asm89

AdrianC wrote: »

Whatever you do, you will still owe nine grand to credit cards...

Stop thinking of your finances as a lot of separate pots. Think of them as one single pot. How much do you have saved? How much interest are you earning on it? How much interest are you paying on your cards? This whole "separate pots" pretence is costing you a lot of money.

You earn £50k+ per year... That's at least £3,200/month. Yet you're only paying £1,100 of it off? How much of that is actually reducing the balance? Reduce your £2,000+/month of spending, and get it paid off ASAP!

0% interest on both the credit cards as mentioned in my post...so no it's not costing me any money. And take home is £2900 (with some additional earning of up to £200 a month from other jobs) and earning 25% on my savings which I can't withdraw without penalty as it's in a LISA, so not an option.

My spending is at the bare minimum, and i live in London and i'm paying rent etc, after bills, travel and food a month, i only leave myself with a few hundred a month for incidentals. So reducing it further isn't an option for now.

steampowered

The mortgage company isn't going to mind whether you have the balance on two credit cards or one. The utilisation doesn't make a difference.

Either way the total debt is going to be taken into account when assessing affordability, reducing the amount you can borrow.

Your post doesn't mention the interest rate you are paying. Credit cards are expensive. You should make sure you are paying the lowest interest rate possible - using balance transfers if you can. And then pay off the most expensive credit card first.

asm89

steampowered wrote: »

The mortgage company isn't going to mind whether you have the balance on two credit cards or one. The utilisation doesn't make a difference.

Either way the total debt is going to be taken into account when assessing affordability, reducing the amount you can borrow.

Your post doesn't mention anything about the interest rate you are paying. Credit cards are expensive. You should make sure you are paying the lowest interest rate possible - using balance transfers if you can. And then pay off the most expensive credit card first.

Thanks, both cards are interest free.