First time mortgage applicant with debt

mcajshaw

Hi everyone

I am hoping for some good honest advice please, as losing a bit of sleep on this one at the moment.

I am a single 43 year-old with hopes to get on the property ladder soon after many years of renting. I am very lucky that I have a gift to assist with a deposit when the time comes, and work full time with a salary of approx. £42,000.

Unfortunately I come saddled with some chunky debt (I am afraid completely of my own making with bad financial investments on stocks and shares over several years).

My debts are:

Credit Card Debt - £11,000 on two 0% cards with approximate 90% and 60% usage respectively.

Personal Loan - £5,500 (£400 a month, ends Nov 27)

Overdraft - £2,500 maxed out by payday each month, but with a very low interest rate.

I have just withdrawn the £6,000 I had in financial stocks and shares account and have now closed it for good and that £6k will be with me in two days.

My question is, in terms of applying for a mortgage in principle and trying to get one in the next 6 months or so, where should that £6,000 go to present my application in the best possible light? Am I best to pay it towards the overdraft and credit card and leave the loan alone?

AI searches suggest regular overdraft usage has the biggest negative impact on a mortgage in principle application, so perhaps clearing that is my first thing to do. But I do not know the best strategy to go for.

This is a mess of my own making, but I am really keen to move on and do my best to turn things around.

Any suggestions on which debts to prioritise first would be most helpful to me :-)

ACG

Ignore AI. There is no definitive answer. Some lenders will ignore overdraft debt as there are no contractual payments, others will decline you if you are maxing it out monthly - very different ends of the scale.

When it comes to debt you should theoretically pay off the highest interest rate first.

But just to make my life easier…

If you clear your loan of £5,500 with then you have £400 extra a month which would clear your overdraft within 6 months.

The extra £500 you could throw at your credit cards and then within 6 months you are down to about £10k on credit cards - which isnt great, but it isnt too bad. You could also then start chucking the £400 a month you have been saving from the loan at the credit cards and have them coming down quite quickly.

Whatever changes you make today probably wont be reflected in your credit report until November, it can take time to filter through but 6 months time if you go hard would look very different to where you are today.

kimwp

I'm not a mortgage advisor.

I think i would aim to reduce the utilisation on your credit cards down to max 30% and then have as small an overdraft as possible by a combination of using your 6k wisely and cutting back on expenditure.

mcajshaw

Thank you for your replies both, they are most helpful.