credit cards vs deposit

[trixie1969]

I'm planning to buy my next property real soon, but have racked up some credit card debts over the last couple of years. Would I be in a better position if I paid the credit cards off from the profits of my current property and took a smaller deposit with me to the next place, or would it be possible to get away with the credit card debts so that I can take a bigger deposit to the next property? What do you think? Have you had similar dilemmas?

[Oneeyedvic]

depends what the level of deposit would be with paying arrears / without paying arrears.

 

Let me know and I will discuss

[Miss Zippy]

Depends what the interest rates are on your credit cards and what the interest rate that would be payable on your new mortgage.  Basically, sound financial practice is to pay off debts with higher interest rates as quickly as possible.  Assuming your credit card debt is NOT on a 0% interest rate, then I'd say it would be preferable to seek to pay off this debt and have a smaller deposit for your next property - although you'll need a bigger mortgage, mortgage interest rates will be a lot lower than your avreage credit card interest rate (unless you're in need of a specialist mortgage of some kind or a 'sub-prime' mortgage, in which case interest rates are usually higher).  Hope that makes sense. The only danger is that you'll be tempted to run up the credit card debt again.

[trixie1969]

Ok well that makes sense, and as this is the second time I've run up credit card debts whilst buying a property I'm not sure that my promise not to run them up again is going to work, but I am co-buying this time and would be way more mindful of my debts affecting other people, plus I am definitely going to cut the bloody things up!! I suppose some deposit is better than nothing and I'd rather have no credit card debts if I possibly can, and I hadn't thought about the interest rate thing, so thankyou for the advice!!

[Miss Zippy]

Yes, cut up the cards!  You�re not alone though.  A friend of mine is a voluntary debt counsellor and she comes across this problem all the time where people have paid off their credit card debts using the proceeds of re-mortgaging or by taking out a  loan to consolidate all their debts, but then run them up again. I know it�s easy for other people to say, but be strict with yourself and look forward to starting a new chapter in your life debt-free.

[ian.miller]

As others said it's all about interest rates, if you'd pay more on your cards (which is likely) than you would on your mortgage then pay them off.

As basically you are either paying �5,000 at 15% interest on a card or �5,000 at 5% on a mortgage. The debt you owe is the same whichever way you slice it, so go with the lower rate.