# Paying down debt with excess income and savings



## Nextsteps (20 Apr 2011)

*Age:*
35
*Spouse’s/Partner's age:*
34

*Annual gross income from employment or profession:*
E100,000
*Annual gross income spouse:*
E30,000

*Type of employment:*
Both private sector employees

*Expenditure pattern:*
We are both generally 'savers'

*Rough estimate of value of home*
E240,000
*Mortgage on home*
E320,000 - the negative equity conundrum...
*Mortgage provider:*
BOI
*Type of mortgage: Tracker, interest only, fixed rate*
Tracker
*Interest rate*
2.5% - after recent ECB rise.

*Other borrowings – car loans/personal loans etc*
E9000

*Do you pay off your full credit card balance each month?*
Yes

*Savings and investments:*
E15,000 shares. 

*Do you have a pension scheme?*
Yes, I pay 8% of gross, matched by employer
Partner has no pension

*Do you own any investment or other property?*
No.

*Ages of children:*
None.

*Life insurance:*
Yes.

*What specific question do you have or what issues are of concern to you?*
Recent promotion to bring to new gross salary level above - a large enough increase on previous. Plan to use all of excess salary above previous (after the taxman takes his chunk) to pay off debt. Looking to develop a three year plan to significantly reduce neg equity on home.

Q1. Where should this be targeted first (i.e. assume this should be to clear car/personal loans, then focus on overpaying mortgage each month as loans are at a higher rate)

Q2. Should I use share equity to clear this debt (and then existing monthly payment on loans goes towards overpaying mortgage). Wait for offer similar to PTSB (assume everyone has ceased overpayments in the short term, waiting for this..."force their hand" to a certain extent!)

Q3. As part of this 3 yr plan, should i cease paying pension contributions over this period (even though there are tax benefits and employer matching contributions)?

All advice welcome, thanks.


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## Greta (20 Apr 2011)

As you are on a tracker, not in financial difficulties and presumably not needing to move house any time soon, you shouldn't cease paying pension contributions. You'll lose tax relief and matching employer contributions and it's not worth it in your situation.

Pay down your non-mortgage debts (which you shouldn't really have at this level of income, especially as you consider yourself a saver), then build up an emergency fund (at least 6 months' worth of expenses in a safe easy access account), then start overpaying your mortgage, chipping away at the negative equity.


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## Brendan Burgess (20 Apr 2011)

You are borrowing €9,000 presumably at expensive rates to invest in shares. This is not a good idea, so you should sell shares and pay off your expensive loans. 

I don't think you should overpay your mortgage as mayb BoI will eventually give a bonus on overpayments. 

You can put money on deposit at a rate in excess of the rate you are paying on your mortgage, so you will lose money by paying off your mortgage. 

You should max out your pension contributions this year as the tax relief will probably be reduced next year. The employer matching is a complication. As a top rate tax payer, contributing to a pension will be inefficient for tax purposes next year. But it will be efficient, when you consider your employer's matching. The solution is to renegotiate your package and get a 3% gross pay increase instead.


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## Nextsteps (26 Apr 2011)

Brendan, Greta - thank you for your responses


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