This WILL BE the least creative way I’m going to generate extra cash to Reduce My Mortgage By £15k, but it’s going to be another vital contribution.
I didn’t actually plan on using my savings during this project because the initial plan was to think of creative ideas to generate money. However, I did a little mental arithmetic and research, and it turns out that using my savings to reduce debt is the way forward. So obviously, I couldn’t avoid from doing exactly that.
Debts usually cost more than savings earn
I’m not going to embarrass myself by trying to explain the logistics behind my decision, so instead I’m going to show you an example from Martin Lewis (the Money Saving expert) of why using savings to clear debt can be a good financial move…
|If you had…|
|£10,000 Mortgage Debt||on a Credit card at 6%||Interest Cost £600|
|£10,000 Savings||In a Savings account at 4% after tax||Interest Earned £400|
|Pay off the debt with the savings and you are £300 a year better off!|
Put most simply, when you save money you’re actually lending your cash to the bank for it to lend on to other people. The difference between the rate at which it borrows money from you (the savings rate) and the rate it charges others (the borrowing rate) is its profit. Therefore, on the whole, it’ll always cost more to borrow than you can earn by saving.
This is why i find it deeply frustrating that many people have both borrowings and savings at the same time, often with the same bank. Effectively it is lending you back the money you lent it, except charging you much more. Ridiculous!
That said, my mortgage interest rate is higher than the rate i’m getting from my savings after tax deductions, so i’d be better off using my savings to clear my mortgage debt.
I don’t have much savings I can throw towards this project, but I do have an amount that will make a huge difference to the cause. The magic number is going to be £5,000k.