What to do with ~£50k?

[alleycath]

We (OH and I, not yet married but plan to post-Covid) are soon to be in receipt of a big chunk of money, kind of advance inheritance - we're very, very lucky.

We want to ultimately use it as a deposit for a house, but currently we both have debts. The first chunk of this money will pay off all that debt. A little more will go on one of us getting an additional qualification which will be useful for career progression.

As we both have very poor credit right now and also aren't sure where we'd like to settle (due to said career progression), we can't/don't want to buy a house just yet.

The money 'left over' from this windfall after debt repayment and qualification and our first holiday (probably just a week in Spain - nothing fancy haha) in a few years will be roughly £60k. While we work on improving our credit file, saving plenty from our now debt-repayment-free salaries, and deciding where we want to buy a house, what should we do with it?

My gut instinct is to put it somewhere we can't access it at all for a while, like a fixed term ISA, given both of us having poor financial management skills historically (both due to complicated family circumstances and also one due to a breakdown/mental illness). That gives us a chance to build up our own savings from 'scratch' without being able to access it, gives us time to practice spending and saving properly. We're both employed (combined salary of £60k), and qualification will be alongside work, so we can more than afford to do so once our debts are paid.

Is that the best/most sensible plan?

We both come from very, very poor families with historic debt issues, no homeownership, hand to mounth scrimping and we both unwittingly ended up going down the same path. This will be a huge second chance for us to get on the right track and learn better habits, but I am so conscious that I don't have the faintest idea how to do this 'right'.

Which one of you is actually getting this money?

Who is getting the money? You aren't married.

You have a bad debit history, now you need to build up a credit history.

@Soontobe60

Which one of you is actually getting this money?

He is! I know it sounds presumptuous that I'm getting involved, but this is all very much his idea - I supported him financially through over a year of physical illness, so him repaying my debts is his way of balancing that out (not that he needs to, but he wants to).

@Ifailed

You have a bad debit history, now you need to build up a credit history.

That's the plan. All repayments have been made on time etc for the last 5 years or so and we haven't taken on any debt in that time, so it's just been a problem of living in a high COL area (due to his work which is very specialised and location specific) and paying historic debts down.

I just don't know how to go about a) improving our credit history once we're debt free, as I assume lenders will look at our recent history, see it was paid off in one chunk and correctly assume that it was done with help, rather than by ourselves and b) how we can best prepare for when we are in a position to buy. We'll be married by then, if that helps - we're planning to just do a registry office type affair once Covid has relaxed a bit!

Does the person giving it (as a deposit?) know that it is being used to pay off the debts of someone else?

@HazyJuly

Does the person giving it (as a deposit?) know that it is being used to pay off the debts of someone else?

It's not being given specifically as a deposit. A house is being sold and the owner has considerable savings, a decent pension and qualifies for continuing care, so they are passing the majority of the proceeds of the sale to their grandchildren now instead of in X years as they think it'll be more useful to them now.

They haven't asked either grandchild what they plan to do with the money, to be honest - other than that they hoped we'd use some of it for a big wedding and are slightly disappointed that's not what we want, haha.

Be careful that your relative has fully investigated the tax implications of giving the money now, as opposed to as part of an inheritance, as you could be hit quite severely if they were to pass away within the next few years (I think there is a 7 year limit...) - I am no expert but thought it was worth mentioning...

@SacreBleeeurgh

Be careful that your relative has fully investigated the tax implications of giving the money now, as opposed to as part of an inheritance, as you could be hit quite severely if they were to pass away within the next few years (I think there is a 7 year limit...) - I am no expert but thought it was worth mentioning...

My OH looked into this - the whole estate including the proceeds of the house sale will be below IHT limit so even if they were to pass away in the next 7 years, which is likely, it shouldn't be an issue! But thank you for responding :)

Name change fail OP?

"wedding and are slightly disappointed that's not what we want, haha."

If I was leaving my grandson that amount of money there is no way I would want it paid off your debts, and would word the "advance inheritance" accordingly.

www.moneysavingexpert.com/savings/lifetime-isas/
This might be worth doing. Put the money in a savings account but set up a standing order for each April, to put the max amount in one LISA each.

In terms of credit rating would you be safe using a credit card in a controlled way - ie for the weekly shop which you pay off in full every month knowing you have budgeted for it?

There are accounts which help you manage your money by setting it into ‘pots’ eg holiday fund, bills, car etc, or roll over the ‘spare change’ from transactions to put it into a savings account for you.

You need to agree how you are running your joint budget & really check out each other’s expectations & ideas. There is a great podcast called Meaningful Money which is about making your money work for you; very easy to listen to & understand- much like Moneysaving Expert. Take some time to learn about money and how it works as it really does help.

@JetBlackSteed

Name change fail OP?

"wedding and are slightly disappointed that's not what we want, haha."

If I was leaving my grandson that amount of money there is no way I would want it paid off your debts, and would word the "advance inheritance" accordingly.

Yep, name change fail! Always forget it doesn't stick.

Fair enough - I understand that point of view.

They're not genuinely annoyed we're not throwing a big wedding - just that they've been badgering us to get married for years and were like "See, finally you can afford to throw a massive wedding!". When we said it wasn't really our style, they joked that the honeymoon better be good, then.

I'll speak to OH about telling their grandparent what we plan to do with the money for avoidance of any upset - I doubt they would be bothered, but I certainly wouldn't want them to be upset. In the grand scheme of things, my debts are much smaller and more manageable than my OH's, so even if he just pays his own off it'll still leave us more money as a couple to save over the next few years as a buffer/to supplement the money for a deposit. As it stands, OH has only just taken over paying their own debts off again as they're back in work, before that I was paying a portion of them due to him not being able to work for a year, so there's definitely wiggle room in my budget now anyway.

@LadyFuschia

www.moneysavingexpert.com/savings/lifetime-isas/ This might be worth doing. Put the money in a savings account but set up a standing order for each April, to put the max amount in one LISA each.

In terms of credit rating would you be safe using a credit card in a controlled way - ie for the weekly shop which you pay off in full every month knowing you have budgeted for it?

There are accounts which help you manage your money by setting it into ‘pots’ eg holiday fund, bills, car etc, or roll over the ‘spare change’ from transactions to put it into a savings account for you.

You need to agree how you are running your joint budget & really check out each other’s expectations & ideas. There is a great podcast called Meaningful Money which is about making your money work for you; very easy to listen to & understand- much like Moneysaving Expert. Take some time to learn about money and how it works as it really does help.

Thank you! This is the kind of thing I was looking for.

In terms of credit rating would you be safe using a credit card in a controlled way - ie for the weekly shop which you pay off in full every month knowing you have budgeted for it?

Yep, I think this would be a good idea - I think I said upthread, we're making all monthly payments fine now, and we're both a lot more sensible than we were, just still paying for our past stupidity and naivety. So this would be a good way to both demonstrate creditworthiness and also 'practice' sensible money management - i.e. paying balance in full rather than making affordable but not full payments each month.

When you say they qualify for continuing care what exactly fo you mean?

@Soontobe60

When you say they qualify for continuing care what exactly fo you mean?

I don't know the ins and outs of their care package exactly, but they don't pay for their care home place due to their health conditions.

Sorry but I do not understand....anyone who has assets or savings has to pay towards their care package or all of it regardless of any health issues?

Not necessarily, crimson - my grandma didn't, she had a house which sat empty until well after her death but she had dementia and other complex healthcare needs that meant she qualified for a continuing healthcare payment. It's not means tested.

@crimsonlake

Sorry but I do not understand....anyone who has assets or savings has to pay towards their care package or all of it regardless of any health issues?

Not necessarily, NHS CHC (Continuing Health Care) is not means tested. It's difficult to qualify for it but basically you if have complex health needs the NHS pays.

Have you thought about using some of the money for therapy? I say this as someone who also grew up like you did, and my poor financial habits are linked to my childhood.
There have been numerous occasions over the years where I have come into money but have ended up making poor decisions with it.
It would be worth it if you were to do some work in addressing your issues with spending/financial mismanagement, and then getting some financial education to make sure you don’t fall back into old habits.
It’s not as simple as just being given money and then never doing that again as your behaviours need looking at.

One good way to repair your credit rating is to have credit card and manage it well. So a credit card you pay off in full every month would go a long way, as lenders need to see you using credit and not defaulting.

@crimson, that's not true. My DF is rich but gets some of his care paid for due to his complex health needs.

OP - does the relative realise that CHC is not guaranteed for life? Just because they qualify now it does not mean it's paid indefinitely. In some circumstances as health declines the actual care needs become simpler, meaning CHC can be stopped.

@crimsonlake

Sorry but I do not understand....anyone who has assets or savings has to pay towards their care package or all of it regardless of any health issues?

Not if its continuing care funding. www.nhs.uk/conditions/social-care-and-support-guide/money-work-and-benefits/nhs-continuing-healthcare/ However, I’m surprised that someone who does qualify is able to make decisions regarding their finances - I thought that there needed to be an element of cognitive impairment. Maybe I’m mistaken.

@CupboardOfJoy

OP - does the relative realise that CHC is not guaranteed for life? Just because they qualify now it does not mean it's paid indefinitely. In some circumstances as health declines the actual care needs become simpler, meaning CHC can be stopped.

I was just about to write this. CHC is very difficult to qualify for (especially for dementia related conditions), is continually assessed and can be removed if someone's condition changes.

@CupboardofJoy @Soontobe60 - both really useful points, thank you. I didn't know CHC wasn't permanent, they were only awarded it very recently, so I'm going to ask OH to have a chat with relative, their carers and social worker about how to make sure they're covered before anything else.