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Building a savings buffer or paying off interest-free debt?

(5 Posts)
FreckledLeopard Mon 06-Mar-17 14:03:23

So, I shall shortly be in a wholly new position and (hopefully) be able to start saving around £1000 per month from May onwards (school fees finishing, hurrah!).

Bit of background - I'm mid-thirties, had DD young, working full time, paying into pension scheme (but need to up my contributions). I live with DP (not DD's father). I'm the higher earner of the two of us.

DP has £4,000 on an interest-free credit card, payable (at the 0% rate) over 48 months. When May comes around and I'm in a position to start saving, I wanted initially to get a bit of a buffer behind me (maybe £3,000 or so) and then pay off DP's credit card (over four or five months).

DP, however, has said he thinks it might be better for us to establish a bigger buffer initially, leave the credit card being paid off at £100 per month over the four years, and instead of paying it off, over-pay on the mortgage.

Other than the mortgage and 0% credit card, we have no debt, but no savings either. Would people prioritise building a buffer, over-paying the mortgage and leaving the 0% card, or clearing the card? In theory, we'd save more money leaving the debt as it is, overpaying the mortgage and building a savings buffer, but I do worry about having credit card debt.

Any words of wisdom, please?

Thanks in advance.

IMissGin Mon 06-Mar-17 15:18:40

I think he's right, as long as the CC will be paid off in the 0% period and you don't put additional spending on it, I would build a buffer and pay off more on mortgage

FreckledLeopard Mon 06-Mar-17 15:24:01

Thank you! I suppose logically it makes sense, but I suppose I always thought that clearing credit card debt would make more sense than mortgage debt, though when you do the sums, it makes sense to overpay.

IMissGin Mon 06-Mar-17 16:21:46

That's just because CC debt is typically more expensive, obviously not the case at 0%

JoJoSM2 Mon 06-Mar-17 21:41:59

I wouldn't worry about the CC either. I'd probably put money in a pension. It comes out of gross salary so it's cost effective. You're also young enough for the new lifetime isa. I'd probably put a bit extra towards the mortgage too. In terms of rainy day savings, you definitely need those. 6 months living expenses are usually recommended but it depends on how secure your jobs are and whether you'd cope if one was out of work.

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