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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

Using this money to pay off debts?

38 replies

Idessa · 01/11/2021 17:20

I have around 10k in debt. I'm soon to gain 17k from a house sale which would be a nice deposit towards a house, however I can't get a mortgage for another couple of years until my son is no longer in childcare. Would I be daft to use 10k to pay off my debts, have 7k left which would pay for a holiday for me and my son (much needed), put a small amount in his savings then have around 5k left as a buffer? It may mean I will never be able to save for a mortgage deposit however I would be debt free. Would I be daft to do this? Or should being debt free be my number 1 priority? I'm very good with money. My debt is car finance and a loan to pay for court costs which was non negotiable as I needed to protect my son. Didn't take out more than I could afford and don't struggle to pay it off. The interest is SO high though... thoughts?

OP posts:

Riverlee · 01/11/2021 20:51

I agree, pay off the debts. Mentally this will be a huge relief.

TotallySuper · 01/11/2021 20:54

Why is the interest on the debt so high? You can't be that good with money if that's the case as rates are at an all time low. I would personally keep the money to one side and save to clear the debt sooner and enjoy a holiday etc. But then I'd value the chance to own a home again more than being debt free immediately when I could be debt free ASAP if I sort out a good 0% deal or low loan rate etc and then keep my deposit money.

HollowTalk · 01/11/2021 20:54

You'd struggle to get a mortgage with a big debt anyway. Just try to save the debt repayments so that eventually you can get a mortgage.

Original poster

Idessa · 01/11/2021 21:11

@TotallySuper

They weren't that low three years ago when I got the loan and it's all that was available to me at the time. I was on a pretty low income. I have to be good with money as a lone parent to a toddler.

OP posts:

TotallySuper · 01/11/2021 21:12

@HollowTalk

You'd struggle to get a mortgage with a big debt anyway. Just try to save the debt repayments so that eventually you can get a mortgage.

Not really. In debt terms £10k is not a huge amount when applying for a mortgage relative to most incomes. The key part is the monthly payment for affordability rather than the debt amount itself.

Calmdown14 · 01/11/2021 21:21

I was coming on to say this might not be the best idea as you’ll never save that lump sum again but in light of the universal credit situation, it’s a no brainier.
If you keep it you’ll still have the debt and it will get chipped down month by month anyway.
You will have a bit of free cash every month. What is your pension like? You may want to look at upping your payments as that wouldn’t be counted towards the 6k limit.
How old are you? If you are already in good spending habits you may be able to save for a deposit once your son doesn’t need childcare.
While a bit of breathing space would be nice, I’d be looking at ways to make the most of the saved debt repayments without breaching savings limits

Cofifeefee · 01/11/2021 21:26

Pay off the debts. It's a long time since I got a mortgage but surely paying off this debt would help with getting a mortgage because you would have more repayment capacity for the mortgage each month?

Good idea from PP who suggested saving the amount you currently pay on the debt.

Original poster

Idessa · 01/11/2021 21:27

@Calmdown14

I was coming on to say this might not be the best idea as you’ll never save that lump sum again but in light of the universal credit situation, it’s a no brainier. If you keep it you’ll still have the debt and it will get chipped down month by month anyway. You will have a bit of free cash every month. What is your pension like? You may want to look at upping your payments as that wouldn’t be counted towards the 6k limit. How old are you? If you are already in good spending habits you may be able to save for a deposit once your son doesn’t need childcare. While a bit of breathing space would be nice, I’d be looking at ways to make the most of the saved debt repayments without breaching savings limits

I have a good pension that I've been paying in to for 4 years now. I recently turned 30

OP posts:

NeverChange · 02/11/2021 19:14

Surely if you have debts, they will impact on your ability to repay any potential mortgage.

How much are you paying months to service the debt? Divert that amount to savings as soon as the debt is cleared and build your savings back up again.

Holothane · 02/11/2021 19:15

Pay debts off you can have treats later.

NoSquirrels · 02/11/2021 19:21

Absolutely pay off the debt. You’re still young, you have time on your side to save a deposit but the debt will only delay you when you’re eventually able to get going.

Keep £6,000 only because of UC. Then I’d save into my DC’s name with any money freed up. Then when you’re in a position to come off UC you can stop saving for your DS and aggressively save for a deposit and not feel guilty about not saving for your DC then, as you’ll already have put some by.

dailydreamin · 02/11/2021 19:30

I would pay off the debt first yes.
The holiday...maybe...spend no more than 1k on this!
Savings yes.
However, OP what I would do is then pretend I still had the debt and save the payments for as long as I could.
And DON'T Spend it all unnecessarily and then get yourself back into debt!! That's the last thing you want!!

DotDotDotDotDot · 02/11/2021 19:46

OP be careful regarding the advice about saving in your child’s name, this still counts towards your total savings allowance for UC. Only if it’s locked in a junior ISA or is under £3000 it’s allowed.

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