Move some debt to mortgage or leave as it is?

[Berriesandcucumbers1]

I'm asset rich (not exactly rich but almost all my money is in my house). Single income, my debt is just under £11k at the moment outside of my mortgage which is roughly £41k. House value somewhere between £220-£240k so I have a large chunk of equity and I'm due to pay it off in about 9 years. My debt was over £20k at one point due to some large things needing sorting on the house, not wants but needs.
My 0% interest on my credit cards is coming to an end later this year, my loan is 3.5%. my minimum payments are over £400 per month
Paying the debt back at this rate will take me about 2 years to clear
I'm debating whether to move the £11k debt onto the mortgage so I would have no credit card or loan debt and that would reduce my monthly payments down to around £120 a month
I currently try to save around £400 a month for my emergency fund but that's just been wiped out again by an emergency and I'm starting from scratch again. I'm careful on my budget, so not any expenses I can reduce now.
I know nobody likes to move unsecured debt to secured. But I'm seriously considering this to allow myself a bit more wiggle room to allow myself to build an emergency fund a bit quicker. If I add the £280 reduced minimum payment to my £400 a month savings I could save a 1 month emergency fund in around 4 months, I could have a 3 month emergency fund in around a year and I would feel a lot more financially secure
Once I'd got a good emergency fund, I could then try to clear down the mortgage debt quicker

I might need to look at the calculations on that later and see how that would work out on my budget. Would you then join the pension fund immediately or priorities the overpayment amounts first until it's cleared and then join the pension afterwards?

May credit cards offer a 0% money transfer.

You can use this to move the loan to a 0% card.

I’d prioritise the pension.

You are missing out on your employers contributions - do you know what that is?
Some will be around 15% (public sector would generally be higher), I think the average is 8%?

If I borrowed £19000 on the mortgage it would be just over £200 a month minimum payment over 9 years
If I added the additional £400 I currently use to created my emergency fund (which I wont need to pay into if I have £8k in savings unless and emergency happens and I need to reimburse my savings) and then the additional £200 I'm not needing to spend towards the loan/credit cards. That'll be £600 overpayment per month. That element of the mortgage would be clear in just over 2 years

If I paid into the pension instead, I would need to reduce the overpayment by £200 and it would take me about 3 years to clear

The pension contributions from my employer I think are around 10%

I absolutely would. It’s not the cheapest way to borrow money but if it gives you a cushion now, and allows you not to worry about money, use the equity.

I wouldn’t, focus on paying off the debt, 2 years will pass quicker than you think. You’re relatively young and in a good position with your mortgage. Are you prioritising the debt by paying most to the highest interest or is the debt in one pot?

What’s the interest rate on the mortgage?

The monthly payment might be lower but what’s the total payback with compound interest?

It seems like you’ve made your choice, but if you put it on the mortgage do join your works pension.

If employer contribution is 10% that’s 10% of your salary that you are throwing away each month, to save yourself what - less than 6% once tax is considered?

Interest rate on the mortgage would be between 3.7% and 4% depending how many years I fix for
So would you reduce the overpayment on the new mortgage, clear it it 3 years instead of 2 and start the pension immediately?

What are the details of the debt? How much is on the credit cards and how much is the loan? You say the £400 a month is minimum repayment what would the monthly repayment to clear the debt in 2 years. Something doesn't quite add up as you say the debt is currently £11k but also that it would take 28 months paying £400 a month which is also £11k where is the interest?

How long have you had the loan? What advice did you take when you got the loan? My question is if when you got the loan you worked out that the loan was better than putting it on the mortgage at that point in time, what has changed so that now it is a better decision to move it to the mortgage?

If you have a debt acquiring interest, a 0% credit card that you absolutely only use in an emergency can be more beneficial than a emergency fund especially if you can't get a better rate on savings compared to the interest on the debt.

If the difference between paying off the debt in 3 rather than 2 years I absolutely would be paying into a pension now especially if your employer pays 10% You could be throwing £8k of employer contributions to your pension away for the clearing the debt 1 years earlier. That is without any compound interest and without the interest you will gain on your contributions and if it is a salary sacrifice scheme the savings in the pension going out before income and NI contributions (although this is due to change in the next couple of years). I would encourage you to put the details of the salary with and without pension contributions into this tale home pay calculator https://www.thesalarycalculator.co.uk/salaries.php

You have done a fantastic job of reducing your debt in half and I do get the desire to get it gone as quick as possible as well as developing some financial resilience but I think taking a step back and looking at the costs and impact it will have over the next 5 years might be more helpful.

On the job front, last year in the space of 6 weeks I went from secure employment and working towards promotion and pay rise to being made redundant and having my last day at work. My team was halved from 6 to 3 people. A year on only one of us is in employment. It is an incredible tough jobs market at the moment. I've had to take a change of path and I am so grateful that I have my pension pot from my employer as it is still growing whilst I take a career break and my contributions have dropped and I have lost my employer contributions.n

Op we did what you did a few years ago and added to the mortgage to clear stuff - and guess what, we ran up more debt (not loads, but about 5k on 2 credit cards) and didn’t put as much away as we’d hoped and now we have the bigger mortgage to boot. Even with all the best intentions, if you are the sort of person who always has credit cards, debt etc you usually remain that way IMO - you’ll just run up again something else at some point. Pay off the cards, and sort out a pension right away, then you can start saving properly in a couple of years time.

I see that the maxim "a little knowledge is a dangerous thing" is being proved a lot on this thread.

It's true that, in general, it's not a good idea to add unsecured debt to your mortgage. However, in this case OP has a good LTV ratio, is young, healthy, in secure employment and has no dependents. She is of an age when people's salaries tend to increase.

It's possible she will get a very good deal on her mortgage which will be lower interest/fees than new loans or credit cards once her deals come to an end.

Paying back loans over a longer period is generally more expensive - but you can also taking into account inflation, and the value of £1 today is greater than £1 in 10 years time.

Behaviour/psychology matters. If OP will feel more motivated to work towards good financial goals (starting a pension, having a rainy day fund) when the loans are out of the way then this could be a good thing.

Blanket rules like some of the posters are spouting are not always useful.

I wouldn't put it on the mortgage or leave it. I'd get a new personal loan, you've said you have one at 3.5%. Use the new loan to pay off both the old loan and the credit cards. A loan of around 10k at 3.5% over 5 years will be around £200 per month , probably less and is at least half what you're currently paying.

The debt is split across a loan and 2 different 0% credit cards. All just under £4k each currently, paying just over £400 in total split across all 3, it would take 28 months in total to pay off at the current payment rate. Loan is about 3.5% so pretty low interest (interest is front loaded, so the £11k includes interest owed, id probably get about £50 interest refunded to me if I cleared the loan now. Which I didn't think was worth mentioning)

I haven't seen a new loan rate anywhere near 3.5% recently they seem to be around 5.8% +

Cannot run the maths just now but you say the loan is 3.5% interest for another 2 years or if you put it on the mortgage it will be a much lower minimum payment and run for 9 years at 3.7 to 4%?

you'll pay back more by putting it on the mortgage.

pension - non negotiable. Only time I’d kiss goodbye to my employer contribution is if I’m in dire straits. That % is a part of my salary deferred to retirement or death in service.

What did you add to the credit cards though?
I haven't added to my credit cards for the last couple years so it's not something that I'm in the habit of using regularly

Even at 5.8% I think you will pay less interest overall with a personal loan than you would putting it on your mortgage. Use online calculators to check.

I'm not planning on keeping it for 9 years, just setting the term to 9 years to keep the minimum payment down but then setting up a standing order to pay it of in 2 years if not starting the pension immediately or 3 years if I started a pension now

Front loaded? So you’ve already paid most of the interest? Putting that on the mortgage would mean overall higher interest on the borrowed amount.

I’d get another balance transfer card and transfer the lot (NatWest doing 36 months), and leave the loan where it is.

Check the interest v balance transfer fee though. They can be high.

It's not truly front loaded (where you pay the interest and then start paying down the loan) they just calculate loan+interest and that's the balance that shows when you look how much you currently owe, but if you make overpayments, they basically give you back any interest you saved by overpaying (it's a weird way of them doing it, but that's how it works)

i thought the same. Poster contradicts everything so pointless asking for advice.

Someone has posted an interesting alternative that I'm considering, that I hadn't thought about prior to this thread
But if you are finding the thread frustrating because I don't take the first piece of advice and ask follow up questions, then that's fine, you can feel free to leave the thread

Ok I think it is possibly not productive to consider all the debt at once

Take the loan you are proposing taking the loan which is currently at 3.5% that you can repay in 2 years to put it on your mortgage at 3.7% which will be over 9 years but you plan on setting up a standing order so that you pay it off in 2 years. If you do as intended there would be no real benefit in moving it as the rates are about the same, you are hoping to pay it off in the same time frame so aside from going from 2 payments to manage to 1 payment. If you don't pay the extra you and going to cost yourself more money and extend the time it will take you to pay off this debt.

I would leave the loan as it is and focus on options for the debt on the credit cards. What happens if you rerun the maths looking just at the credit card debts and what your options are for them.

But also check out the maximum you are allowed to overpay your mortgage by, as that amount may exceed it? It's usually 10% of your mortgage balance per year.

What is your current mortgage rate and how long left on your current deal?

11k should only cost you £110 pm on a 0% credit card - can you move the balance or loan again? If you are very disciplined you could get a long 0% on purchases card, put all your normal spending on there and you that normal spending money to pay the loan amount and also save - but like I say, you'd have to be on it and disciplined.

Overpayments are allow up to any value with my provider as long as I don't pay off the full mortgage before the fixed term comes to an end, I won't get an early repayment charge
Current mortgage is about 2.3% fixed for another just over 3 years with a 9 year term remaining. I wouldn't need to change this if I asked for additional lending, I checked this, I can basically have a second mortgage
The credit card minimum payments on most 0% credit cards is around 3% of the total balance that's the issue, one of my cards it's actually 3.75% so quite chunky minimum payments when you're also trying to save an emergency fund