To pay off mortgage and car

[Coffeeandbiscuitz]

Hi,

Ive just returned to full time work after having 4th and final dc! Dh has also had a promotion and thus has put us in a good position that I am very grateful for.

we now have around 4K after we have paid all of our essential outgoings and food.

we have 76k left on our mortgage, 18k left on car finance and £5800 on a loan so about 100k on total,

I’d like to pay 3k of our spare money towards these debts with a view to being totally mortgage and debt free in under 3 years. Dh thinks we should live a little and just let it tick along

WWYD?

3k per month you mean?

I would sit down together and agree priorities. DH wants to live a little. You want to pay off debts. Maybe you both want to also make sure you out plenty in pensions?

Split the money across them.

Eg £2k on mortgage and £2k to live a little - though I think this is a lot of money to do that.

Or £2k on debts, £1k on pensions, £1k to play with.

The 4K does that include clothes, trips. holidays or is the 4K after all these things.

Your title is a bit misleading! You're not paying it off!

You cant get rid of any of the debts completely with it

You could make a big chunk of the smaller debt disappear but its about the balance of whats needed,do you have savings, whats the interest on the relative debts compared to the interest you could save i fyou put it in a savings account or paid it off?

Do you have any house improvements to make?

Lots of ways of looking at what is needed

It all depends on interest rates on each debt. 78k is a small mortgage. How long is the term and what rate is it at now? Is that fixed? I'm guessing your car finance and other loan have the highest rates. If so, target them first and find a balance. Did you really need to pay off your mortgage in 3 years time?

I’d personally spend half and save half. I would pay the loan off as priority. The car I wouldn’t worry about, what’s the likelihood of you keeping it? I’d probably save so you could trade it in when finance is in positive equity and buy a new car outright. That reduces your total outgoings in the future and then I’d start saving to pay off chunks of the mortgage. But I wouldn’t pay it off each month, I’d rather save it until you have a few grand then pay it off. Just in case you needed cash easily accessible but that’s me

Yes per month sorry

Oh I misunderstood OP, you mean 3k extra a month? Not just 3k sitting around?

I think I would just start with the smallest debt and work upwards. That way you decrease your outgoings every month bit by bit anyway

Sorry it’s my fault- I wasn’t clear

Could you compromise and do £2.5k per month debts and £1.5k per month to have fun? It would only lengthen the time to pay it off by a bit.

The important things are the interested in the various 'loans', whether you are filling your pensions properly, what you'll need to save for your 4 DC to go to University.

Definitely work out the most expensive debts first and overpay to free yourself from the interest. You and your H need to be on the same page so you need to sit down with him and have an open conversation.

Paying our mortgage off early was the best thing we ever did, it allowed us to put that 1500 a month into our pensions which has enabled me to finish work at 57.

I say get rid of the debt asap.

I've just done Martin Lewis' calculator of university spending. To put mine through university i should have been saving £267 a month for a year already. Factor that in!

I'm always team live a little. So you'll be debt free in 3 years, great, but you'll have spent 3 years of your children's short childhoods living a smaller life than you can afford. It sounds like you'll be financially comfortable for the majority of your lives that you don't need to stifle your spending power during the most expensive years of your lives too much.

Go for a balance, pay off the loan, over pay the mortgage a little bit, but make sure you're spending money enjoying time with your kids too whatever that looks like for you, for me, it's holidays!

If you have £4k "spare:

You probably need some "fun" money to live a little.
You should pay off the capital on the debt to reduce overall interest charged.
You should put together an emergency fund of savings for when the washing machine breaks etc to avoid needing more loans.

Start with getting £2-3k into savings - perhaps by putting away 500/month.

Put 1,500 aside for living. But maybe have an agreement that some months, part of that goes into a separate savings account for the odd weekend away/holidays fund to have a nicer standard of accommodation/ a few nice meals in restaurants etc. A couple of hundred would make a big difference over a few months.

That leaves 2k. I would check the interest rates of the 3 loans, paying off the highest one first. Or perhaps putting 500-1k into mortgage, and all or most of the rest into the highest rate loan and a small amount into the other. But check the details of each account for any penalties for early repayment. And once the highest rate loan is paid off in full, push to pay off the next highest etc. It's about how much interest you can save and reducing to cost to you of each loan in overall terms.

And with the mortgage, if the normal repayments drop as the capital gets paid off to match the original term, arrange to keep paying the original amount as the monthly payment as that will compound the benefits of any extra payments off the capital.

But getting the information on the interest rates and how much it's costing, and the impact of paying off loans early to your overall family finances and chances for lots more fun and safety nets combined in the near future, while still having some fun, is important.

To sit down with a sheet of paper showing the actual numbers, and what different levels of fun money v paying off loans has at different rates. So that you can both have an informed conversation. And listen to his reasons, but show him your reasons.

What are the interest rates? The loans and car finance are likely to be higher than the mortgage, so focus on paying them off first.

Unlikely to be really worth overpaying the mortgage excessively so long as the interest rate is reasonable.

The financial flow chart might help you get your thoughts in order.

https://ukpersonal.finance/flowchart/

I've heard a good rule of thumb for situations like this before - split your spare money into thirds - a third for debt, so paying off high interest debt at least, a third for now, living a little and a third for the future, ie pensions.

Also depends on your personal situation - how secure your jobs are, what your pensions are currently like, whether the £4k is after all essential outgoings or just DDs and food, ie have you accounted for things like insurance, car costs and appliance replacement?

Plus things that are less essential but you're still likely to spend money on like holidays, Christmas, home improvements and car replacement. If all of these have to come out of the £4k, it will reduce it quite a bit but you should aim to be able to cover these as they arise without borrowing, which will need a pot of possibly £10-20k or more in the short to medium term.

Hopefully you can keep the car and put off any substantial home improvements until you've paid off the car finance and loan at least.

However, while overpaying the mortgage is a good idea (but save separately if you took out a long term low rate fix before interest rates rose) it's also likely to be beneficial to put money into your pensions due to tax relief and over time the rate of growth should beat your mortgage rate.