Is my financial situation really bad?

[MessyJessyy]

DH is in the armed forces. We have 2 DC and youngest will be starting school in September. I’m studying at the moment and taking care of all childcare with DH away for long spells.

We have £2,500 on a credit card
We have a loan with £16,000 left to pay on it. This was taken out to buy our car but also incorporated some other small amounts of debt. This is due to be paid off in April 2024.
We have a help to buy ISA with £800 in it.
We have an instant access savings account with £200 in it.

DH has had a substantial pay increase recently, which means we have £1,300 after we pay our main household bills each month. The money left is to cover food, fuel, clothing, any car related expenses etc.

I have no pension. DH has a decent pension through the armed forces.

I am 31 years old.

The credit card isn't costing you any extra though so I would pay the minimum off that each month and pay the max you can afford to from the loan, which is costing you extra in interest

But the 0% runs out on the credit card in September. If we don’t clear that in time, the interest we will pay on that will be much bigger than the 2.9% on the loan. Alternatively, we can take out another 0% credit card but would likely also pay a fee for the balance transfer. I also thought it might give us a bit of a mental boost if the credit card goes.

I agree with clearing the card before the 0% runs out. However, you may gain more if you pay into the help to buy ISA, than if you pay off the card quicker. E.g. you’ll pay about £450 in interest on the card this year. If you pay the maximum into the ISA (£200/month) you’ll make an extra £600 from the top up. So, I would work out what you need to pay the card off by the end of the 0% and push the rest into the ISA, then look at the loan. Note you can only pay £200 per month into the isa, it doesn’t roll over. So put any spare you have between now and when the 0% on your card runs out into the help to buy isa to make the most of that allowance. Once you’ve paid off the card, put the full £200 per month into the isa and the rest against the loan.

This assumes your DH job is secure and you don’t need a source of immediate cash. If you do need that, put a bit aside, then hit the card to meet the 0% deadline.

“ E.g. you’ll pay about £450 in interest on the card this year. If you pay the maximum into the ISA (£200/month) you’ll make an extra £600 from the top up.”

Sorry, I meant £450 interest on the LOAN not the card.

You need to build up a deposit if you want to buy in 5 years.

Pay off the credit card by september.

Then

Work out how much interest you will pay on the loan between now and 2024 when it finishes. Is this more or less than the 25% you would get for the money saved in the help to buy scheme if you didn't pay the loan off? Use the money where you get the most saving.

It depends what the cost of credit card transfer fee to a new 0% deal is vs costs saved by paying off the loan faster, I think you can usually get low transfer fees if you look around

@MessyJessyy that sounds like a very sensible plan and something you can reassess whenever you feel you need to!

...the balance transfer fee is not a lot, maybe 30-50 quid for 3-5k. To get a balance transfer on to one card its a good idea to pay SOME off. But its the least important, as long as you are not using the card. I do know what you mean about the mentality of paying it off sooner.

Interest on loan is 2.9%

For the Lisa, you put in £4 and government puts in £1.

I think you need run it through a spreadsheet lol.

Ok so a 16k loan over 4 years costs approx 900 interest.

Op here is a Lisa calculator..

www.google.com/amp/s/www.telegraph.co.uk/investing/isas/calculator-much-can-make-lifetime-isa-lisa/amp/

The interest on (for example) 350 over 4 years is a lot. Well worth considering putting as much as you can into the Lisa sooner...and paying off the credit card more later on.

I think you have the right plan.

The only thing I’d do differently is to put that £300 a month into my instant access ISA instead of direct to the 0% card. Continue paying minimums on the 0% card, build up the cash savings, then come September you have options - either pay it off if you can’t get another balance transfer or decide to pay it off the loan instead. In the meantime you have money in case of big-bill emergencies.

But then you won't have built up a deposit. Yes you can start saving once you've paid the loan of early, but you'll be limited on how much you can put in the Lisa. You'll miss out on 25%