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Original poster

What’s the best balance /focus- pay off credit card, over pay mortgage or build up savings?

23 replies

NeverTwerkNaked · 07/04/2018 17:43

Trying to decide what to do with my “extra” money once DD childcare costs reduce to zero (currently £100 ish a month) in June (she is starting school in Sept and I work school hours)....

Have a £5000 credit card debt (legal costs from a horrible divorce from abusive ex) but it’s on 0% interest and I have good credit rating so pretty sure I can switch to another 0% deal. I am paying it off at about 150 a month at present (I have a standing order as well as the banks direct debit)

Mortgage - will be intimidatingly large once we move (live in SE and have a blended family so 4 children to accommodate) but we will have a low interest rate and 25 % equity

Savings - I don’t really have any at the moment (wiped by divorce) but DP will still have £10K or so after house purchase

Should I focus on one or chip away at all 3?

OP posts:

Original poster

NeverTwerkNaked · 07/04/2018 17:44

(I do get bits and pieces of extra cash from overtime or left over at the end of frugal months too, and want to apply the same approach to that)

OP posts:

QuiteLikely5 · 07/04/2018 17:46

If you only have £100 extra a month I’d pay it off the CC

Notmorewashing · 07/04/2018 17:47

cc first no point in spreading between all

MrsBobtonTrent · 07/04/2018 17:54

I would save a small cushion (if you don’t have any savings at all £1-2k?), then pay off the credit card.

Mrscog · 07/04/2018 18:05

How long is your 0% interest for? Mortgage is in many ways the better option, but equally some savings behind you also important. I think I’d save for three months first for a mini emergency fund, then credit card for a bit, then add to your fund again and so on. Once your CC is sorted you’ll have a lot more money to save/throw at mortgage.

Mrscog · 07/04/2018 18:07

In fact no I’ve changed my mind. Just save it all for now. The interest rate will be terrible but it will still be outstripping your cc debt. Then if you don’t get another 0% deal you will at least be able to make a big payment to reduce the debt. If you think you can keep it at 0% for the whole term then you should.

Original poster

NeverTwerkNaked · 07/04/2018 18:14

that’s a good idea about putting it into savings but ring fenced for paying off credit card in future, so it earns at least a little interest for now.
I guess I am so keen to overpay the mortgage but I ought to focus on getting cc paid off and a bit of a savings cushion first, then switch my priorities

OP posts:

twinkledag · 07/04/2018 22:26

Save in the highest interest rate account you can find then pay off the credit card when the term ends.

Ikeameatballs · 07/04/2018 22:30

I'd pay off credit card. You could pay it all off in 20 months rather than 40 months.

twinnywinny14 · 07/04/2018 22:32

Save first toprovide an emergency fund, otherwise you will end up using the CC again. Once you have a suitable amount saved then work at paying off the CC next x

UncomfortableBadger · 07/04/2018 22:33

Have a look at Dave Ramsey on YouTube for some ideas.

His advice is usually to build up a £1,000 emergency fund first of all, at the same time designing a formal written budget (and sticking to it!) and then focusing on repaying debt via the snowball method, going from the smallest debt to the largest.

Once you have repaid all debts excluding your home, the focus is then on building an emergency fund of at least 6 months of expenses, then setting aside 15% towards retirement and focusing on paying off your house.

Not saying it’s the ideal way (I’d be minded to focus on repaying the debt with the highest interest rate first of all, based on maths alone) but it’s a reasonable guide

Original poster

NeverTwerkNaked · 07/04/2018 23:18

Thanks, this is really helpful stuff.
Pension is solid (public sector) but long term I do want to substantially over pay our mortgage. But I think I like the idea of pushing into savings (to get at least some interest) then paying off the credit card in a chunk!

OP posts:

Original poster

NeverTwerkNaked · 07/04/2018 23:21

(Haven’t needed credit card for emergencies, we budget quite carefully etc. It was purely used to pay a stupid amount of legal fees / mediation costs due to exH being angry and impossible and using the most horrifyingly badly behaved and incompetent firm of solicitors around (my lawyer and barrister reported them to SRA on several occasions and they got told off in court numerous times). It’s been exhausting and galling but ex has a new girlfriend now and she seems to have shaken a little sense into him.

OP posts:

BarbaraofSevillle · 08/04/2018 07:43

Savings until you have a decent cushion for things like car repairs, white goods replacement, any planned new roof, windows, bathrooms etc. If you're public sector and your job is secure, you probably don't need to worry about loss of income due to redundancy or sickness unless catestrophic illness?

Roll the credit card debt over for as long as you can keep getting 0% offers. I wouldn't even bother overpaying to be honest, it's not costing you anything. Maybe pay a quid or two over the minimum if you're worried about having a minimum payments marker on your credit file, but otherwise just put extra money into savings instead to earn a little interest. The money will then be there if you need to pay off the credit card.

Once you have maybe £5-10k in savings, perhaps then overpay the mortgage, but that depends on the interest rate. If it's really low, there's no point.

Ours is under 1% so we just save up instead and are earning 3-5% on a few thousand and the rest just goes in the Santander current account that pays 1.5%, so currently for us, overpaying the mortgage is just silly. Would be different if you are one of those people who can't not spend all the money in their current account though.

twinkledag · 08/04/2018 07:54

Rolling the credit card debt will cost you in charges though? As every time you do a balance transfer you'll get charged fees. They don't do any 0% balance transfer fees anymore.

madeyemoodysmum · 08/04/2018 08:03

Martin Lewis always says cc

BarbaraofSevillle · 08/04/2018 08:11

Rolling the credit card debt will cost you in charges though? As every time you do a balance transfer you'll get charged fees

Oh, do they not? Sorry, forgot about fees. I suppose that's fair enough, pay it off out of savings if there are fees. The end of the fee free offers are probably because of people like me who has a few thousand on a Tesco credit card at 0% with no fee and the money sat in two of their current accounts paying 3%

Martin Lewis always says cc

Martin lewis says 'pay off the highest interest debt'. If the OP currently has a credit card at 0% and a mortgage at 2% and can get savings at 3%, he's never going to tell anyone to pay off the credit card as it doesn't make financial sense.

Original poster

NeverTwerkNaked · 08/04/2018 09:00

Hadn’t thought about the fee for rolling over. (Not had a cc before other than one paid off in full each month). Have looked and can get one with my current mortgage provider with no balance transfer fee. So will aim to pay off cc in the time of this card plus that next card (gives me a couple of years). Will stick extra in savings then pay in a lump.
Then my next goal will be to shift to balancing between savings and overpaying mortgage (I appreciate mortgage is v low interest now but am v conscious that is likely to change in the future)

OP posts:

twinkledag · 08/04/2018 09:03

Good plan OP 👍

SuperLoudPoppingAction · 08/04/2018 09:09

I played around with mortgage overpayment calculators and worked out how much I needed to overpay to take one year/two years off my mortgage and settled on overpaying enough to pay mortgage off 2 years earlier.
I have a smallish mortgage so it's not that much.
I want to do this now, from the start of the mortgage, because of the way interest works - if I knock money off from the beginning, I'll have the most impact overall.
Because it's a fixed amount, I save the rest, so I'm still building up savings.
I pay a chunk of my credit card off as soon as I get paid, so I'm chipping away at that too.
I know it doesn't make as much sense as doing just one thing, in terms of interest etc, but it's the way that makes the most sense for me, as I can see the impact of each thing so it's motivating me not to spend the money, which I might otherwise do

Yogagirl123 · 08/04/2018 09:15

Pay off whatever you have the highest interest rate on.

Original poster

NeverTwerkNaked · 08/04/2018 09:17

superloud that’s what I am very conscious of in relation to mortgage over payments.
But on the other hand this cc debt is constant reminder of what an impact exH has on my life, so seeing it go will be a relief.
Think I will aim to focus on paying cc off in 2 years (by putting into savings then transferring) but any extra money I get (overtime etc) can go to making a start on mortgage overpayments

OP posts:

MrsBobtonTrent · 08/04/2018 19:47

Once you’ve lost the cc, you’ll have £250 a month for mortgage. And cc isn’t strictly 0% as you usually have to pay 2% or so to transfer a balance over. So best to clear the cc before current 0% rate expires.

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