Allocating funds

Pinto101-2008

Hi all, 
I find myself in the bittersweet position of recently getting an inheritance of £25k. The reason I’m posting on this board is that we have significant debt and I’m really not sure where to start with what to prioritise….

Living beyond our means historically plus some bad luck during covid got us into a real mess just over a year ago. We decided the only realistic way to deal with this in the short-medium term was to add to our mortgage as debt consolidation. So we’re 1 year into a 5 year fixed deal with an extra £30k of additional borrowing (22 years left on the mortgage as we had to extend the term to make it affordable at the new higher interest rate). Looking at the statement I don’t think overpayments are allowed, but I will ask the lender. 

In addition to this I have £7k left on my student loan, which I’ll pay off over the next eight years at a cost of a couple of grand in interest. 

We also have £9k left on a 0% credit card that we’re paying off at a rate of £300/month (0% expires in the next year, but we shouldn’t have a problem balance transferring again)

We currently have some money in a LISA but no accessible savings. 

My plan is to keep £15k aside as accessible savings/emergency fund (3-4months expenses), pay off the student loan and put the rest onto the credit card to speed up it being paid off. But I must admit i feel really uncomfortable not using any of this money to do something about the mortgage, which will obviously cost a great deal in the medium-long term! Would others pay off that additional borrowing as a priority and keep chipping away at the student loan and credit card? In theory the monthly repayment for them could be diverted to overpaying the mortgage (if allowed), but experience has taught me it’ll be very easy to spend that money on other things (monthly finances feel very tight right now). 

I would be so grateful for anyone’s thoughts on this. I keep going round in circles… 

FlorayG

That's going to depend on what type of person you are. Can you leave it in savings and absolutely not touch it unless you absolutely have to? It's nice to have money in reserve but if you're going to find yourself saying "Oh, we have £15k in there, it's fine to take out a bit for a new car/ carpet/ garden shed/ holiday then it will soon diminish. (I know because I used to be that sort of person but I am no longer) 

Fletchasketch

Your priority should be to have 3-6 months of expenses in an emergency fund. If 10k would cover this, I'd consider putting 10k into Premium Bonds as you should recieve around a 4% return in winnings and it's easily accessible, but not quite as accessible as a savings account. The rest depends on the interest rate your paying, is the student loan rate higher or the mortgage? Usually the advice is not to pay off a student loan as they are wiped out after a certain amount of time and if you stop working you won't pay anything. If you're not able to pay the 15k off the mortgage, I would either invest the remaining 15K in a stocks and shares ISA or add it to the PB fund to pay off the cc/mortgage etc. once the 0% rate ends or you re-mortgage. Everyone is different though- good luck!

Pinto101-2008

FlorayG said:

That's going to depend on what type of person you are. Can you leave it in savings and absolutely not touch it unless you absolutely have to? It's nice to have money in reserve but if you're going to find yourself saying "Oh, we have £15k in there, it's fine to take out a bit for a new car/ carpet/ garden shed/ holiday then it will soon diminish. (I know because I used to be that sort of person but I am no longer) 

I think you’ve probably identified the underlying cause of my indecision- deep down I feel like I’m not far enough along my journey of recovery from being a spender and worry that paying off a couple of things and having a healthy savings account will make me relax and start spending again. Not even on big ticket items but with inflation high and our salaries pretty static I think we might just gradually overspend. Which is not OK with the £30k problem we’ve kicked down the road via the mortgage. We definitely need some savings though… 

RAS

Go back and check the details of the mortgage. Some allow an overpayment. Ask the precise details. As in, if they allow a repayment once a year, when does the year begin? Precisely how much?