What makes the most sense to be putting ~£200 a month into?

dayallnash

My partner and I got some pay rises recently which means we have ~£200 extra per month spare to play with. We have all of our normal bills covered already, and we have enough spare ‘pocket money’ each month to keep ourselves happy, so we don’t feel like we want to change our lives significantly in any way right now (I suppose some people would get some new furniture or start a project of some kind which ends up taking up the new income). 

We have a fairly new mortgage - it’s about 1 year old and due for remortgaging in the summer - and we’ve already done a lot of work on the house since moving in to increase its value, and there aren’t many major projects left, though we could still do more to improve value if we put our minds to it. 

There’s also some credit card debt that is slowly getting paid off each month, but we are already overpaying on those payments and it’s not like they’re killing us. It’s on track to all be paid off next year already. 

We are keen to get working on saving for our next home. We’d like to move in 4-5 years to our ‘forever home’, where we can start and bring up a family. However we’re not sure the best way to use this new income to help towards this savings goal. Should we start overpaying on the mortgage? Open a savings account (And what type?)? Pay off some debts? We are risk averse - not keen on investing in anything by ourselves, we don’t have the time to spend on it - but we’d open an account that is inherently based on investment if the returns were basically guaranteed. Or should we just squirrel the money away in our current accounts in preparation for the dreaded remortgaging?

I appreciate that this is a very open ended question, but I’ll take any advice right now. This stuff doesn’t come super easily to me!

Veteransaver

Clear the most expensive debt (Eg credit cards) first. No point saving or investing if you are paying 25% interest on that.
After that I'd probably consider putting it into the mortgage or setting it aside for when you do remortgage, if it's possible to get your LTV into a lower bracket by remortgage time that could save you on interest and give you a better choice of deals.
I assume your current mortgage is at quite a good rate, though is likely to increase a lot by summer?

FarmGirl78

To me (also risk averse) it's a no brainer to pay off your debts first.

The only exception to this would be if your credit card is at 0% and you're intentionally only paying the minimal repayment each month so you can put the excess into a savings account.

Paying interest on a debt while you have savings is just daft.

friolento

What is the interest rate you pay on your credit card debt? If zero, when does the 0% deal end?

What is the interest rate on your mortgage?

FarmGirl78

Stocks and shares (which is 'investing' rather than 'saving', a phrase which for me took many years to click they were different things!) is best suited to longer term, so if you need money available to you next year then a straightforwards easy access saver might likely be best. You should easily be and to find 5% rest access. Nationwide are currently offering 8% with up to 3 withdrawals allowed per rolling 12 months. First direct offer 7% but that's fixed for a year, so you can't get your hands on the cash earlier if you need it (technically you can but let's assume you can't). I think Natwest do 6% and Santander 5.2%, that's if the to of my head.

You could consider overpaying mortgage, but if your rate is less than 8% (5% for example) you'd be better off sticking the spare money into the Nationwide or Natwest regular savers.

It's also good to establish a "!!!!!! hits the fan' fund so you've got quick access to money if you're ill and can't work, the car goes bang or other reason you might need to pay unexpected bills suddenly.

Nurse2047

Have you got pensions? 

lr1277

As you haven't memtioned it, I would start an emergency fund and build it up to 3-6 months worth of net salary. Just in case any unexpected expenses come your way.

As you are already overpaying your credit card bills, I would take one of 2 approaches.

1) Use all of th £200 to pay into the Emergency fund

2) Pay £100 towards the credit card debt and £100 towards the emergency fund.

Once the credit card debt is paid off, use half your excess cash for the emergency fund and the remainder of your excess cash to either reduce your mortgage (so you can get a better remortgaging deal) or save for the medium term.

This approaches assume you don't add any more debt to your credit card(s).

boingy

You haven't mentioned them but your top three priorities should be pension, pension and pension.

jimjames

Veteransaver said:

After that I'd probably consider putting it into the mortgage or setting it aside for when you do remortgage, 

The OP hasn't made any mention of an emergency fund, in which case putting money into your mortgage is a bad idea as it's not available immediately if you need it to pay a large bill. Build up that fund after clearing expensive debt and then look for additional places like overpayments.

Albermarle

and we’ve already done a lot of work on the house since moving in to increase its value, and there aren’t many major projects left, though we could still do more to improve value if we put our minds to it. 

Do not be too sure that doing a lot of work on a house ( and spending a lot of money in the process) will necessarily increase the value by the same amount. Apparently a rule of thumb when valuing a property is to only add between 40 and 70% of the cost of recent work onto the price, despite what is promoted by programmes like Homes under the Hammer. Although of course the more you do yourself the better. Movements up and down in the housing market have much more effect.

From a purely financial point of view probably adding more to a pension is the best bet, although with current mortgage rates, paying that off quicker is also probably not a bad move.

penners324

Clear the credit card bills (unless on a 0% card).

Regular savers (a couple mentioned above).