Using savings to pay off 0% credit card debt

rosiecheetham

Hi everyone,
I have got three credit cards which are all 0% interest but I've saved up enough to be able to pay them off. However it would almost wipe out all my savings. I'm worried that due to my mortgage and having a loan for my car, it looks like my debt is huge. I'm not earning much interest on my savings, (pennies each month), so wondered if it would be beneficial to clear the debt on maybe two of the three cards? I'm going through splitting up with my partner and will be needing to apply for a mortgage on my own soon and I'm conscious of my credit rating - I would like to be able to borrow what I need and don't want the credit card debt to go against me.
What do you think/recommend?
Thanks

[Deleted User]

BT cards depend on how much you pay as to what is being reported - if you pay more than the minimum or the card is recorded as a promotional rate, it's not seen as a bad thing as much as say having interest bearing card. I'd pay down what you need to (based on highest interest first). Leaving yourself without a safety net of savings where your debt is manageable is a risk, perhaps you can over pay the BT debt and reduce it while not taking the savings hit in one go - you might want the savings towards a deposit anyway?

MallyGirl

surely you will need the savings for deposit and all the fees?

rosiecheetham

MallyGirl said:

surely you will need the savings for deposit and all the fees?

I have that covered thanks

2021BJ

Your debts (even at 0%) are likely to affect affordability and ultimately how much you're offered.  You should speak to a broker about it but IMO they're going to tell you to clear the cards.

Jrchmn

I put off applying for a card when re-mortgaging because I was worried about it affecting my mortgage but in fact it was the other way round. My bank are very helpful and they said that in general if you're getting a mortgage through your existing bank then credit rating, credit cards etc don't affect things unless you're clearly a high risk. I had a friend who got her first mortgage shortly before and had to go via a broker. Again he said that her credit cards wouldn't affect things that much as she was already high risk. I think credit cards might affect someone who is shopping around for the best mortgage deal with big name banks.

In terms of your credit rating and how risky you look to lenders your best option may be to apply for more credit as a credit utilisation of about 25% is seen as a positive by most lenders. You could ask your existing card companies to increase your credit limit and pay off some of the balance from your savings to make things look healthier. Maybe speak to your bank and a mortgage broker and see what they say.

Nebulous2

I decided to try stoozing about 4 years ago, and borrowed over £30k within a few days. At the time I had no interest in further credit. About 6 months later I decided to buy a second home as a retirement / holiday home. 

I walked into a Nationwide one lunch time to ask about a mortgage, found someone who said I needed a mortgage appointment, but he could run some figures to give me an idea what was possible. We looked at reducing the credit card debt in £10k stages and each £10k left in place  reduced the amount I could borrow by about £40k. 

In the end I did what you suggested and paid off 3 out of 4 cards taking it down to about £8k. 

I'd say - if you are pushing your mortgage limits, debt will definitely impact how much you can borrow. 

You also need to be aware that in the current climate reporting to CRAs has really slowed down, it could take 3 months to disappear from your file. Again my Nationwide guy said if I applied and gave a figure for debt which varied from that reported by the CRAs I would get an automatic decline, meaning I would need to produce credit card statements and appeal. 

Your personal figures and other lenders may vary, but that gives you an idea of my experience. 

phillw

If you have a large enough deposit then I would pay off the cards, but keep them open in case of an emergency.