Paying off debts v’s saving for a deposit?

[Spudders]

I’ve been in debt for half of my life now, but a few years ago I decided enough was enough and I started to make an effort to pay back what I owe. I came up with a 3 year plan which I have managed to stick too, I’m now about 6 months away from being totally debt free and I’ve been really pleased with how well I’ve managed to get rid of the debt.

 

My main aim is to get my own place and recently a couple of people have suggested that I’m actually stupid paying off my debts and in fact I should be saving that money for a deposit. I’ve even been told I’d be better getting another loan so I can put that money towards a deposit as well.

 

These suggestions kind of go against everything I’ve been being told for years about debt, but at the same time they make some sense to me. After all, I will get no mortgage without a deposit, yet having some outstanding debt would not prevent me getting a mortgage if I had a suitable deposit.

 

What are your thoughts / advice?

 

Cheers.

[keithd]

If i were in your position i'd pay off all my debts as soon as i possibly could, then once they're cleared the saving for a deposit would begin, it may put you back 6 months, 12 months, whatever but to be debt free when you have a mortgage will be a godsend. it could be possible that you'd never get the debt cleared once you have a mortgage

 

debt 1 v deposit 0

[GenevaSaint]

Having a debt will also have a negative effect on how much you can borrow for a mortgage. Although the higher mortgage means higher deposit!

[Dr Who?]

Clear all debts. About 5 years ago I was saving really well, but my debts were piling up. I then received charges and late payment fees on the debts, and in the end used my savings to clear some of these debts. This put me back to square one, if I used the money to clear the debts rather than saving I would have cleared them much quicker as the charges pile up quickly.

 

I am now debt free, apart from my mortgages and a loan with the bank. I have built up my credit score from 350 to 999 (The highest) and just got my second mortgage. It seems like a long slog, but it is from experience worth clearing debts before saving.

[Joensuu]

Largely depends upon the interest rate of your debt.

 

At the moment, interest rates for savings are so low that most of them are actually devaluing if you factor in inflation. Even the best fixed rate ISAs are now around 3.75%. If the interest rate on your debt exceeds that sort of rate, you are definately better off paying your debt off before making any savings.

 

[The other factor to mention, is that the government is (IMO) trying to raise inflation. This will devalue sterling, in order to reduce their actual debt. Having debt right now might actually be a sensible thing... (if it's fixed at a low rate of interest), as if the government does manage to induce inflation, the total real value of that debt will be reduced. However, you'd only stand to benefit if your debt is at a fixed rate, and if the inflation is substantial enough to force your employer to significantly up wages. As such I think this scenario is less likely to occur, and as such, you are almost certainly going to be better off by paying off your debt asap.]