Debt & Savings - What would you do? 12 April 2022 at 7:12PM edited 12 April 2022 at 7:12PM in Debt-free wannabe 19 replies 1.9K views

Warble1

I have made so many mistakes through my life (36 years old) regarding money that I just want to ask for some advice as I feel like I don't know where to turn to at the moment.

As it stands I have a loan worth £9000 with 4 years left apr is 9.3%. This is all the debt I have now and while yes I'd rather not have it it's there and I know at least in 4 years time I will be debt free whether I overpay or not. Just so you get the picture this is from years of having 25k plus debts building up, swapping from loan to credit cards and overdrafts, horrible stuff.

As I have whittled my outgoings down to as low as I can (besides moving back in with parents) I have actually been 'saving'. I know this makes no sense in a way but I needed a break from everything going straight to debt. I have saved up £4500 so far and if I continue in the same vein by the end of the year I should make it to £12k or so. Now I do not like where I live but it was a means to an end (cheap) but it has now got me thinking would it be a good idea to maybe try and get a mortgage. I earn £35k and by the end of the year the loan will be down to around £7500.

So what would you do in this situation? 1) Keep saving and try to get a mortgage in 6-9 months or is it laughable to even try get one with the debt outstanding?) 2) Stop saving and just continue living with no money and nothing to show for myself but know the debt is dropping at a good rate or 3) Keep saving (to have a good backup pot in case of emergency) and pay the loan off in one go at the end of the year but realise that I will have to continue living here for an extra year or two as I will not find another place as cheap. I will basically be back to square one with a net worth of £0.

Sorry for the wall of text but I just don't want to make another financial mistake, I want to move forward and that is all I've been working towards over the past few years.

fatbelly

Your savings will not get 9.3% interest so overpay the loan either in instalments or in a lump as t&cs allow. Then continue to save. When you have a good lump for a deposit, explore the housing market.

The game is to pay as little interest as you can, anywhere.

With a 20% deposit you have some good mortgage options and better again with 25%

If you're able to save around £1k a month you're in a great position to set yourself up for the next ten years

kimwp

As above, focus on paying off your debt. You have a good emergency fund and you'll be able to build up a good deposit when you have paid off the debt. If you applied for a mortgage now, the debt would reduce the amount they would be willing to lend you and the debt payments would be taken into account in the affordability assesment.

kimwp

Oh! And there's much more to you than whether or not you have a house x

Warble1

Thank you, I understand that it'd be much more beneficial to have the debt gone over other priorities. I just thought about getting onto the property ladder as I feel it would be better for the future over paying rent (I daren't add up how much I've paid in rent over the years) especially with the way prices are going. I know I'm not alone with this though. I am on the home straight with debt but I just feel like I don't have it in me to put another proper year into it.

I think the main thing is I know I'm not getting any younger and it feels like if I don't act now then it may be too late. On the other hand I cannot wait to be debt free as I have loved 'saving' money and watching it grow. Maybe this is just part of the debt free journey and wondering what to do with the extra income.

It's nice to hear you say that kimwp, I do get a lot of pressure about buying a house and there are only so many excuses you can make as to why you haven't saved up a solid deposit yet (I told no-one about the debt I built up) - I mean with what I've put into debt I'd have that 25% deposit now.

enthusiasticsaver

Pay off the loan before trying to build up savings. Paying 9.3% interest on your debt while receiving a pittance on savings makes no financial sense and any application for a mortgage would be reduced if you have debt.

sammyjammy

I would do half and half, if you're saving 400 then overpay the loan by £200 a month and save £200 a month, that way you know you are saving interest and repaying the loan faster but you're still building towards your house deposit and that clearly gives you a mental boost.  Its great to get debt free but you've got to look after your mental health as well, for me its not at any cost although others will feel differently.  Good luck and well done for what you've done so far!

RAS

This all assumes that you can overpay the loan without penalty? Have you checked?

kimwp

Warble1 said:

Thank you, I understand that it'd be much more beneficial to have the debt gone over other priorities. I just thought about getting onto the property ladder as I feel it would be better for the future over paying rent (I daren't add up how much I've paid in rent over the years) especially with the way prices are going. I know I'm not alone with this though. I am on the home straight with debt but I just feel like I don't have it in me to put another proper year into it.

I think the main thing is I know I'm not getting any younger and it feels like if I don't act now then it may be too late. On the other hand I cannot wait to be debt free as I have loved 'saving' money and watching it grow. Maybe this is just part of the debt free journey and wondering what to do with the extra income.

It's nice to hear you say that kimwp, I do get a lot of pressure about buying a house and there are only so many excuses you can make as to why you haven't saved up a solid deposit yet (I told no-one about the debt I built up) - I mean with what I've put into debt I'd have that 25% deposit now.

It's not nice to get pressure, particularly if it's something you want to do but can't. You're on track to save your deposit really quickly once you've paid off your debt and it's not possible to tell the future - house prices may drop massively in the next couple of years, in which case you'd be in a far better position than if you had bought this year.

And while you aren't giving all the money to a landlord if you have a mortgage rather than rent, there are advantages to renting - having a house means buying and servicing white goods, keeping an eye on brickwork and tiles, dealing with a leak when a bit of broken tile cuts through your bay window roof,  having your fence blow into your neighbours drive several times in one winter, noticing your front door starting to become more difficult to close and lock... it's basically a constant of dealing with repairs and upkeep. Plus renting means the flexibility to move if needed eg loss of job, moving with a partner. There's this pervading view that having a mortgage is the better option, but really there are pros and cons to both.

in_need_of_direction

where are you saving your money? If your plan is to buy a house, given that you’re under 40, can you use a LISA (I think that’s the name) to benefit from government funding? I think there is an annual cap.  I would get the annual max in there for the year then overpay / clear the loan.  Remember you will only get a mortgage based on your ability to repay and this will take account of ongoing loan repayments.

RosaBernicia

Just noticing that you say you don't actually like the area you live in - how about taking some time while you are saving to seriously think about whether you want to stay there and what your other options are. Moving house is massively more expensive and complicated when you're selling rather than renting, and can equate to a year or more's mortgage paydown when you take into account furnishing etc. 

I've a friend who bought after similar worries about getting on the ladder, but is currently selling up their first property and going back into rented, having realised that they don't like their specific location.  They can't afford to move within the town because they're unlikely to get better paying work and are now having to completely rethink plans for their career as well as home ownership.  Thinking through what you really want from where you live, and how you can achieve it, might open up some ideas and save you hassle later.