Pay off 0% credit card or keep savings higher...

Psycho Sonny said:
I had credit card debt which is paid off every month in full. They never batted an eyelid at it.
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That's completely different from the OP's situation.

In my experience, it makes a big difference. I had 10k of 0% credit card debt (with the money in a savings account) when I applied for a mortgage earlier this year. I thought that if I had 10k debt, the maximum amount I could borrow on a mortgage would be reduced by 10k and I had enough deposit to cover that. When I applied, it actually reduced the amount they would lend me by about 60k so I had to pay off all the cards and then they were happy.
 
Interesting perspectives in here.

I think in the grand scheme of things, based on the above, a few K on a credit card that I pay off on time each month and have never missed a payment on shouldn't be a problem. However, it could make life easier if I did just pay it off.

Our mortgage would be 3x annual earnings before bonuses and so it isn't as though we'd be really trying to stretch to the x4.5 area, where this CC debt could have a large impact. E.g. if the debt took 10k off what we could borrow it wouldn't be an issue, whereas taking 60k off in @touch 's case might make a dent.

The_Arbiter said:
Just ignoring everything for a second, are you even getting a return on your savings? Or that debt even?
Kill the debt. Imagine if something essential broke, you had no savings as they were now equity in a house, and you've still your CC debt around.
Bank asked me about CCs, they didn't ask anything more when i said it's paid off on DD at full amount every month.
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I would still have savings because I've always liked to have a cushion for the unexpected. However, this cushion would be smaller.

toyotacelicagt4 said:
You say you save around 2/3rds of what you earn a month but keep transferring your credit card balance between cards? This doesn’t make sense. Use your monthly savings and pay off your credit card. Once that’s paid off then start saving again? I really don’t get your logical thinking as the lenders will see a debt as a debt. Regardless if it’s 0% interest or not.

Hope this helps
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I've transferred it once, no fee for doing so. Just didn't see the reason to pay it off if I can get 0% on it.
 
ARRRGGGHHH So much being spouted on this thread from people who do not know what they are talking about. Nothing grinds my gears more than financial threads in GD where people post not knowing about the subject.

OP - You have a number of factors to consider, all of which will depend on the size of the card debt, your Loan to Income ratio (which takes account of the monthly payments servicing any debt) the amount of your savings vs the value of the property you are looking to buy (thus your % deposit and loan to value of your new mortgage when you get it), the affordability of said mortgage..... LOTS of things to consider all as one, not just one thing in isolation.

Some lenders MIGHT want you to have less debt. Most won't be fussed if you meet affordability and LTI calculations.

The simple fact is that paying off the card MIGHT actually put you in a worse position if it means your savings are reduced to the point it puts you up a LTV bracket of your mortgage product, or out of the LTI ratio for a certain lenders scoring requirements. The flip side is that paying it off MIGHT mean the difference of being able to get the lending you need, or not - It all depends on where you are in terms of what you are looking to borrow vs income, plus it MIGHT affect your affordability for the same reasons.

In short - You need your mortgage advisor / broker to run the calculations for you to look at the best case scenario. Of course it may make NO DIFFERENCE whatsoever either whichever way you do it if you are looking for a mortgage which is low in relation to your income.

HTH.
 
We'd be borrowing around 3x earnings and so not stretching it to x4 or x4.5 and so hopefully a few thousand on a credit card wouldn't make a great difference?. I could pay the card off and still have enough for my deposit but I don't want to unless I know it's going to benefit me in getting a mortgage.

Point taken though, many things to consider and best to just ask the advisor/broker to... advise.
 
My brother recently remortgaged and the bank asked them to pay off their credit cards prior to lending them the extra they wanted to borrow (to re-do the kitchen).

I suppose it depends who you go to and how stringent they are.
 
EVH said:
My brother recently remortgaged and the bank asked them to pay off their credit cards prior to lending them the extra they wanted to borrow (to re-do the kitchen).

I suppose it depends who you go to and how stringent they are.
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Not surprised as you imply they had several cards with debts on them.

They also wanted to borrow more rather than a straight forward re mortgage.

Lenders have gotten much stricter recently because of Covid removing 5% mortgages, etc.

If paying off the cards doesn't push him into a higher LTV bracket then it makes sense to do it and just borrow the difference.

If it does then It makes sense to pay off whatever doesn't and stay in the LTV bracket for the lower interest rate.
 
We've just successfully borrowed more from our mortgage, despite me having debt on a few 0% credit cards - had to provide a lot of docs as I'm self employed but we got there in the end. It's taken our LTV to 79.9% (the current limit is 80%!!) but we got the funds last week :)
 
I think the thread is a good bit of proof that all lenders/situations are different.

OP - If you have the money set aside anyway, i'd just keep the CC debt, and if asked it's then not an issue to repay it. If you're not asked then just carry on as you are.
 
I don't know how, but we got approved for £360k even thought we had £30k worth of debt.

In terms of the OP, I had always assumed that if you have savings and debt, the net result of those 2 would be the factor, with more negative weighting given to the debt (as you could end up blowing your savings on other things).
 
It doesn't matter.

Its simply moving money.

If you had 5k in savings and 5k of credit card debt.. If you pay it off or not. You still have 0 money.


Shouldnt be an issue
Wasn't for me

Its more that I was paying 50ppm towards that. So my affordability dropped by 50ppm
 
I would ask before you pay it off. My sis just got a mortgage and she has about 25% of her salary in debt. The mortgage sounded unlikely too....but she got it.
 
krooton said:
I don't know how, but we got approved for £360k even thought we had £30k worth of debt.

In terms of the OP, I had always assumed that if you have savings and debt, the net result of those 2 would be the factor, with more negative weighting given to the debt (as you could end up blowing your savings on other things).
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Debt isn't really a bad thing, I think what they're more interested in is your ability to afford that debt, and subsequently any additional debt on top (i.e. the mortgage).
 
As far as my understanding goes banks care more about low credit utilisation than actual amounts, believe under 33% is considered good. They also like to see you have above a certain amount of credit though not sure what those figures are off top of my head.

Personally I'd pay it off as it's still money out of your pocket each month
 
Initially yes, but its still a liability. What puts the most cash in his pocket long term? Once the debt is gone that minimum monthly payment then can surely be directed at savings or investment (or additional mortgage payments) but that's just me.
 
Vidar said:
Initially yes, but its still a liability. What puts the most cash in his pocket long term? Once the debt is gone that minimum monthly payment then can surely be directed at savings or investment (or additional mortgage payments) but that's just me.
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Long term he's be better off not paying it off for as long as it's 0%
 
Basher said:
Long term he's be better off not paying it off for as long as it's 0%
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Just my opinion but I just don't agree, the more you reduce your monthly outgoings the more available cash you have long term. Yes there may be short term pain but overall you're better off surely, plus the savings made on his monthly expenses are likely a larger return than what he's getting in interest on any savings at current rates.
 
Vidar said:
Just my opinion but I just don't agree, the more you reduce your monthly outgoings the more available cash you have long term. Yes there may be short term pain but overall you're better off surely, plus the savings made on his monthly expenses are likely a larger return than what he's getting in interest on any savings at current rates.
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But you have to factor in the cost of reducing your outgoings, vs the opportunity cost of doing so.

Why pay off something that is 0% if you could get 3% in savings?
 
Vidar said:
Just my opinion but I just don't agree, the more you reduce your monthly outgoings the more available cash you have long term. Yes there may be short term pain but overall you're better off surely, plus the savings made on his monthly expenses are likely a larger return than what he's getting in interest on any savings at current rates.
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You don't pay less towards the debt by only paying the minimum. You still pay the same amount each month, just not directly to the credit card.
If your credit card bill for the month is £500 and the minimum payment is £50. You pay the £50 minimum on the card and pay the other £450 into a savings account. You still take the full £500 off your monthly budget.

Keep doing this each month during the interest free period on the credit card. By the end of it you'll have built up a few thousand pounds worth of debt on the card but you have that exact amount sitting in your savings account with a few quid extra in interest. Use the savings account to pay off the credit card before you need to pay any interest on it. (or balance transfer onto another interest free card and keep building it up)

You're not going to get rich by doing this but you might get £50 for free, so why not? There's no point paying more than required on a 0% credit card when you can use that money to earn interest elsewhere.
 
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