Credit Cards - to pay off or not to pay off!

peteuk

Hi, 

I paid off all my loans in September and had some good advice about my Credit cards but would welcome thoughts on this in more details. 

We have £35K for a deposit, we should leave our current rented accommodation in March, although there is scope to extend this by three months but its not guaranteed.   Mortgage adviser has suggested we pay off as much of the credit cards as we can.  So here's the list with balance, APR and monthly payments

Paypal Credit  £734   Apr 21.9   Payment £40
Vanquis £460.10  Apr 39.9  Payment £30
Capital One £271.34  Apr 0  Payment 0  (Long story short, thought Id paid it off hence no payments, defaulted 5 years ago no payments over that period, found on credit search) 

Next £241  Apr Apr 24.9  Payment £20 

Total balance £1706  Monthly payments £90 

IF we can get the three month extension then where quid's in. Low rent we can pay it all off and resave for the deposit. If not then we are either buying a house quickly or moving to rented which is going to impact our ability to save...usually I just go for it but now I'm being a bit more cautious.

Any advice welcomed. 

RosaBernicia

Looking at your list I think I'd prioritise finding out how best to handle the defaulted card, as that is what may affect your credit score for mortgages.  Hopefully someone with more knowledge will join shortly, or you can look around the forum, but I think if you've made no payments in 6 years it would become unenforceable ('statute barred') and may drop off your file.  If you make a payment or acknowledge the debt, you restart the clock.  So I think there's questions there about when the 6 years would come up, how that fits with your timing for needing a mortgage, and whether your credit score would look better with that card paid off and settled even with a row of missed payments, or whether you'd be better off waiting for it to disappear. 

After that, the Vanquis stands out as having the highest interest rate. 

Good luck

enthusiasticsaver

If you are paying interest on those cards I would pay them off immediately.  As the Capital one is relatively small and still within the six years I would clear that too.  

TheAble

Are you saying a 35k deposit is enough to buy a house but 33k (if you paid off the cards) is not?

Do you have a specific house in mind and a mortgage offer in principle? If not, you will find getting a mortgage much easier and at much better rates if you have no outstanding credit card debt.

peteuk

TheAble said:

Are you saying a 35k deposit is enough to buy a house but 33k (if you paid off the cards) is not?

Do you have a specific house in mind and a mortgage offer in principle? If not, you will find getting a mortgage much easier and at much better rates if you have no outstanding credit card debt.

£35K is what we have (Deposit, Stamp Duty and Solicitors fees) with no back up.  Paying the loans took us down to this but we did save as they were high interest, long term loans.   

They house we had in mind had just sold, I believe STC. We are looking at £30K as a 10% deposit.

TheAble

I think go the simple route and just pay off the cards. They're on high APRs, it's the last bit and I'd just be done with it. Also the sooner they're paid the more time your credit file will have to improve before you need to apply for a mortgage.

saajan_12

peteuk said:

We have £35K for a deposit, we should leave our current rented accommodation in March, although there is scope to extend this by three months but its not guaranteed.   
..
IF we can get the three month extension then where quid's in. Low rent we can pay it all off and resave for the deposit. If not then we are either buying a house quickly or moving to rented which is going to impact our ability to save...usually I just go for it but now I'm being a bit more cautious.

Focusing on this as I'm usually a housing board regular.. What mechanism means you "should" leave leave in March - is that the end of the fixed term, or have you / the LL served some kind of notice?

Assuming you're on a normal AST with say a 12 month fixed term ending in March, then you absolutely CAN continue on a periodic tenancy, rolling on from month to month. This is by statute, perfectly normal regardless of what the agent / LL think they will / won't allow. You don't have to wait for the LL to agree to an extension or renewal or anything, it happens automatically. You can then leave with a specific notice (1 tenancy period in line with the tenancy dates unless your contract specifies otherwise). 

Reason I mention is if we can take out the March / June deadline, then hopefully you can focus on the debt / house plans. House buying can take 3-6 months to get through all the surveys and conveyancing, so flexibility in dates is key. A March / June deadline may be tight and if you have an extra move or are locked into another 12 month rental contract, that could make it even harder to buy. 

On the debt, sounds like you have relatively low amounts compared to the deposit. To keep a cleaner file, I'd suggest raiding the deposit to pay off everything asap (possibly notwithstanding the defaulted one, depending on how that would impact your credit file - others will advise better on that one). You'll be earning next to no interest on the deposit vs the interest paid out on your credit cards, and in terms of a deposit, you should be able to make that back by the time you get through the house buying process. 

peteuk

saajan_12 said:

Focusing on this as I'm usually a housing board regular.. What mechanism means you "should" leave leave in March - is that the end of the fixed term, or have you / the LL served some kind of notice?

Assuming you're on a normal AST with say a 12 month fixed term ending in March, then you absolutely CAN continue on a periodic tenancy, rolling on from month to month. This is by statute, perfectly normal regardless of what the agent / LL think they will / won't allow. You don't have to wait for the LL to agree to an extension or renewal or anything, it happens automatically. You can then leave with a specific notice (1 tenancy period in line with the tenancy dates unless your contract specifies otherwise). 

Reason I mention is if we can take out the March / June deadline, then hopefully you can focus on the debt / house plans. House buying can take 3-6 months to get through all the surveys and conveyancing, so flexibility in dates is key. A March / June deadline may be tight and if you have an extra move or are locked into another 12 month rental contract, that could make it even harder to buy. 

On the debt, sounds like you have relatively low amounts compared to the deposit. To keep a cleaner file, I'd suggest raiding the deposit to pay off everything asap (possibly notwithstanding the defaulted one, depending on how that would impact your credit file - others will advise better on that one). You'll be earning next to no interest on the deposit vs the interest paid out on your credit cards, and in terms of a deposit, you should be able to make that back by the time you get through the house buying process. 

LL has served us with 93 days notice, however its complicated as house is tied to a previous job. 

If I was given the extra three months then I wouldn't hesitate to use the deposit to pay the debt, then using the next 5 months to build it back up.  However its the balance of risk at present as to do I pay the debt and not get the extra months, so therefore end up with a slightly lower deposit or adding stamp duty onto the mortgage.

enjoyyourshoes

Resolve why you use CC first.
Spend less than you earn
challenge every potential purchase 
Have a real detail realistic plan in place to achieve the house purchase goal

good luck

peteuk

enjoyyourshoes said:

Resolve why you use CC first.
Spend less than you earn
challenge every potential purchase 
Have a real detail realistic plan in place to achieve the house purchase goal

good luck

Without going into it too much, like the loans (which we paid off early) some of the CC was for essential items.  We returned to the UK in 2019 with very little and so had to set up the house quickly.  Although this doesn't account for all of it. 

There are benefits of having a credit card and we are looking at keeping at least one for emergencies.