25k, 4K debt, want to buy a house.

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Danielle1985x
Danielle1985x Posts: 29 Forumite
in Savings & investments
Hi all ,

Have just sold my first house that I owned with my ex partner. I’ve come out with 25k and want to know the best place to put this, in a year or so I want to look at buying my own place, so will need to be somewhere that I can get at it pretty easily, and also add to.

I’ve got 4K debt on a credit card currently, I am paying off around 100 a month but obviously it is going down slowly. should I use some of this money to pay it off? I have a 0% interest card so interest on it is not an issue.

Thank you
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  • Alistair31
    Alistair31 Posts: 946 Forumite
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    At 0% it makes no sense to pay it off.

    You could spread your £25k over interest paying current accounts and regular savers.

    Only argument for paying it off would be to have it off your record when it comes to affordability check on new house, but that’s some time away.
  • PasturesNew
    PasturesNew Posts: 70,698 Forumite
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    I'd pay it off.... it's done then.

    Also, the date it is fully paid off is the starting date for a "clean record" showing in your history.

    The amount you can earn from savings is so little, it's not worth trying to compare that against the 0% of the debt. £4k for one year, savings interest you're looking at just a handful of ££ "gained".

    Better to just have a completely clean slate now ... and get it over and done with.

    Not worth the hassle... just pay it off. Fresh start. Nothing in your way to queer your pitch when you're ready to buy.
  • xylophone
    xylophone Posts: 44,422 Forumite
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    Have you ever had a Nationwide Flexdirect account?

    If not, you could open one, deposit £2500 and earn 5% for a year.

    You could also open a TSB Plus account, deposit £1500 and earn 5%.

    You would set up a same day mid month SO for £1000 from TSB to NW and from NW back to TSB.

    In this way you earn 5% or the £4000 which you owe on the 0% CC - you repay the CC as soon as the 0% ends.

    With regard to the remaining £21,000, you might choose to save £250 a month into the NW Flex regular saver.

    If you have 6DDs, you might consider opening a couple of Tesco current accounts - you could earn 3% on a total of £6000 at least until next April - you could set up SOs between the two accounts to meet the monthly pay in.

    Otherwise savings rates here

    http://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html
  • Vet
    Vet Posts: 180 Forumite
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    Danielle1985x wrote: »
    Hi all ,

    Have just sold my first house that I owned with my ex partner. I’ve come out with 25k and want to know the best place to put this, in a year or so I want to look at buying my own place, so will need to be somewhere that I can get at it pretty easily, and also add to.

    I’ve got 4K debt on a credit card currently, I am paying off around 100 a month but obviously it is going down slowly. should I use some of this money to pay it off? I have a 0% interest card so interest on it is not an issue.

    Thank you

    You could make some £ on it by putting into some 5% savings/current accounts but to be honest, i'm of the opinion that if you wipe your debt now, its done. You'll still have £21k to get interest of, but you'll be debt free. Which is a nicer feeling that anything.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    If you had asked the question in the debt-free wannabe board, I could understand the reaction to 'just pay off the debt, it's done then and will be a relief'.

    However, this is the savings and investment board where people will be more practical and say that owing £4k on a card at zero cost when you have £25k on hand to clear it at any point you fancy, is hardly a millstone around your neck dragging you into a crushing depression.

    There is not much relief to be gained now by saying 'phew,I paid off my debt'; because you are already in the position of being able to say 'phew, I can pay off this debt whenever I please... but it makes no financial sense to do so because it costs nothing to have the debt and I can earn some interest in the meantime on the cash'.
    Just don't forget the due date for the end of the 0%.

    Also, while it can be good to clear the credit card before applying for the mortgage, there is no real advantage to showing an early start date of a 'clean record' of not having any credit card balance a year or two before needing the mortgage. Sure, if it was an overdue debt, default, CCJ etc then you would be watching the clock for the time to pass so that they were ancient history before a credit search was made. However, that's not you. Showing that you can use credit, within its limits, and pay off on time without defaults or overdues, is a positive rather that a negative for prospective lenders. The balance is only a small fraction of your annual earnings.

    If you are 'nervous' about the affect on lender's perception of you when you eventually come to get the mortgage (which you don't need to be), you might like to change your direct debit to pay a fixed amount each month rather than minimum payment every month. Then the lender won't include the 'minimum payment' flag on your credit report when they submit your monthly data.
  • Computer_Beginner
    Computer_Beginner Posts: 269 Forumite
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    So how can a lender make money on a 0pc credit card loan?
    I'd always assumed there was some kind of catch in the small print.

    Is this a free lunch?!
    Selling off the UK's gold reserves at USD 276 per ounce was a really good idea, which I will not citicise in any way.
  • Alexland
    Alexland Posts: 9,653 Forumite
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    Yes free lunch for those that understand the product, adhere to the terms and have a solid plan to repay before interest becomes chargeable. They make lots of money on the many people who fail on these criteria.

    Alex
  • greenglide
    greenglide Posts: 3,301 Forumite
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    Often there is a fee when you get the money and then it become interest fee.
    It is a long time since any of my card suppliers offered me a true "nil cost" interest free deal.
  • Zero_Sum
    Zero_Sum Posts: 1,567 Forumite
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    Computer_Beginner wrote: »
    So how can a lender make money on a 0pc credit card loan?
    I'd always assumed there was some kind of catch in the small print.

    Is this a free lunch?!

    They're banking on enough people not being able to clear the balance at the end of the 0% period. As long as youve got the money stashed & earning interest & can clear the debt at the end, its a free lunch.
  • Armorica
    Armorica Posts: 866 Forumite
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    4k credit card debit is unlikely to be a problem for a mortgage. Affordability test will look at the minimum pay.

    If you pay it off, that's 4k less for a deposit. That's far far more important if you are looking to buy!!

    This consideration would change as soon as your credit card debt attracts a high interest rate.
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