Our double debt problem!!! Do we need help?

dad2twins · 12 March 2017 at 4:24PM

Good afternoon everyone, I would really like some advice, and perhaps perspective, on our current situation.

My wife and I are 36 & 35. We met at uni in the early 2000's and have stuck together ever since.

We both pursued careers in teaching after graduating and we were lucky to climb the ladder relatively quickly. We were a very typical 20 something couple with a decent income. We would go on holiday 2-3 times a year. Weekends away were the norm. We would eat out several times a week and meet friends for drinks at weekends etc.New cars every couple of years were also the norm! We made all of the typical mistakes such as maxing our credit cards, consolidating, doing it again, consolidating....... You get the picture i'mm sure.

We were able to buy our own house in 2006, largely due to my wife receiving some inheritance that we used as a decent deposit. This is the one positive financial decision that we have made! We live in a 3 bed semi and whilst we would like to move on in a few years, we are fine here for now.

We married in 2013, largely funded by my wife's parents, however we still managed to accrue the best part of 10k wedding debt due honeymoon and a few bits that we paid for. I must add that I regret none of these past experiences. We had a wonderful time together during our twenties and have some fantastic memories. I just wish that we had been more financially careful.

Fast forward to 2015 and we decided to start a family. We were delighted to find out that we were expecting twins. Our 2 beautiful babies arrived at the end of 2015. This was a turning point for us and made us totally change our lifestyles and attitudes towards money. At this point we were both in loads of debt BUT we were managing it and there were no missed payments etc.

My wife returned to work in January 2017. She has done brilliantly well at work and is now a Vice Principal of a high school. After much number crunching we decided that It would make sense for me to stay at home and look after the twins. Putting the twins in full time day care would have been both financially and logistically unviable. Our parents are not really able to help out with regular childcare as they have their own commitments. I am currently doing a but of freelance work, earning around £750 per month. I will definitely go back into teaching when the twins are at school.

We have been living frugally for several months and it's fine. ( see SOA below). We have managed to reduce the debts by a fair amount and we have not added to the debt, or taken our additional borrowing since Dec 2015. We earned quite a bit more at that point, although we never added it up. We didn't make as much progress towards the end of my wifes maternity, however we still managed to keep up with monthly payments.

We are now trying hard to clear this debt asap. We do have a surplus each month. We are currrently saving this.We will probably pay something off with it in a few months. The surplus also acts as a buffer for my freelance income as there are no guarantees that this will always be there ( athough it probably will, in reality)

My main question is, due to our debt level, my wife has been looking online to find out about DMP's etc. I really don't want to go down that route as I think that we are actually doing ok. Yes, we owe a lot of money but we are managing to stick to a plan. I have moved balances etc as much as possible. There is one awful card that is 27.9% so we are throwing £600 per month at that card ( about £450 more than minimum) to clear it and reduce interest ( thanks snowball calculator!)

I have completed the stepchange online debt remedy tool and it tells me that we can afford our current debt level. I have also worked out what would happen if our 0% deals expire. by overpaying we would still be ok, it would just take a little longer.

I have posted my SOA below, with a few explanatory notes. I have include the Child benefit, however we will most likely lose this soon.

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 2
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 750
Partners monthly income after tax....... 3338
Benefits................................ 130 for now, at least!
Other income............................ 0
Total monthly income.................... 4218

Monthly Expense Details
Mortgage................................ 494
Secured/HP loan repayments.............. 185
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 150
Electricity............................. 90 dual fuel with first utility
Gas..................................... 0
Oil..................................... 0
Water rates............................. 32 spread over 10 month
Telephone (land line)................... 0
Mobile phone............................ 35 2 sim only deals
TV Licence.............................. 12
Satellite/Cable TV...................... 0
Internet Services....................... 12
Groceries etc. ......................... 300 includes nappies!
Clothing................................ 100 this varies
Petrol/diesel........................... 80
Road tax................................ 20
Car Insurance........................... 50
Car maintenance (including MOT)......... 0
Car parking............................. 10
Other travel............................ 0
Childcare/nursery....................... 20 I pay a few quid each week for baby groups etc
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 29.5
Contents insurance...................... 0
Life assurance ......................... 30.5
Other insurance......................... 22.99 We pay this for cover our kitchen appliances
Presents (birthday, christmas etc)...... 50
Haircuts................................ 0
Entertainment........................... 100 we try to have one meal out each month and a cinema trip
Holiday................................. 50 We might go to devon in summer
Emergency fund.......................... 0 - forgot to do this. This should be £2500
Total monthly expenses.................. 1872.99

Assets
Cash.................................... 0
House value (Gross)..................... 200000
Shares and bonds........................ 0
Car(s).................................. 9000
Other assets............................ 0
Total Assets............................ 209000

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 98000....(494)......0
Hire Purchase (HP) debt ...... 10000....(185)......0
Total secured & HP debts...... 108000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
credit card 1..................15400.....300.......0
loan (consolidation)...........15000.....304.......4.5
SOFA FINANCE...................1200......25........0
ITG credit card................2000......40........0
halifax CC.....................7650......150.......0
barclaycard....................9750......200.......0
credit card ( wife)............4370......600.......27.9 - includes a big over payment due to interest
Total unsecured debts..........55370.....1619......- I hate this figure but it will be less soon.

Monthly Budget Summary
Total monthly income.................... 4,218
Expenses (including HP & secured debts). 1,872.99
Available for debt repayments........... 2,345.01
Monthly UNsecured debt repayments....... 1,619
Amount left after debt repayments....... 726.01 - currently going into savings ( £615 last month due to MOT)

Personal Balance Sheet Summary
Total assets (things you own)........... 209,000
Total HP & Secured debt................. -108,000
Total Unsecured debt.................... -55,370
Net Assets.............................. 45,630

Are we doing ok? I am an optimistic person and I feel thankful that I have a lovely wife, 2 healthy babies and a comfortable home. I am sure that there are many people who would swap with me, debts included. I am also grateful that we have been able to take control of this debt, before it controlled us.

Based on all of this, would a DMP be necessary, or do we just continue as we are. We would like to move house when the debts are gone, or at least sub 10K so I wouldn't want to do anything that damaged our credit score.

Any comments or advice welcome

January2015 · 12 March 2017 at 4:57PM

I wouldn't touch the equity in the house. That is, essentially, consolidating unsecured debt by borrowing against the equity in the house to clear some or all unsecured debt. My advice would be 'Don't ever do that'.

I do agree that you shouldn't be saving each month but should be throwing money at your high interest credit card.

Council tax looks high - is that right and is it over 10 or 12 months. I live in the expensive south east and over 12 months for a 4 bed house I only pay £119 per month over 12 months.

If you are set on clearing your debts then the entertainment allocation needs to be drastically reduced or go altogether. Although I do understand the need for time as a couple to stay sane and keep the relationship strong when you have young children. Grown up time alone is definitely needed but £100 p/m is a lot.

Everything else looks reasonable to me. I think you are doing well with twins on your grocery budget. Clothing may seem high to some, but with constantly growing children I can see that is needed.

If you opt for the DMP route then you will trash your credit files for at least six years. That may, or may not, be a problem. Are you okay in your current house or will you be wanting to move. As a budget holder/signatory will your wife need to declare a DMP to her employer (may need to check her contract to be sure).

If you are confident your income will be sustainabe at least at £750 p/m I think you could clear the debt without resorting to a DMP. If your income is not likely to be regular/reliable, you probably do want to seriously consider a DMP.

Apart from trashed credit files, a DMP is not a bad thing. I love my DMP - best financial decision I ever made (I would say 'we' but my OH just followed along and is now quite happy with the DMP).

dad2twins · 12 March 2017 at 5:30PM

Thanks for quick replies. I really don't want the DMP route. I just don't think it's needed. Potentially we could pay well over a grand on top of our minimums. I have just done the step change debt remedy again and yet again it tells me 'you can afford your debts' and that I just need a monthly payment plan, which is what we are already doing.

I have been number crunching all afternoon and I can't see why we can't clear this within 4 years. Am I being deluded or overly optimistic. I have a tendency to always look on the bright side, much to the annoyance of my wife!

enthusiasticsaver · 12 March 2017 at 5:36PM

In view of the fact that you have surplus income and most of your debt is at 0% I would not recommend a DMP. I don't think the debt will be repaid any quicker and it will trash your record. You are overcommitted undoubtedly and I am guessing the consolidation loan should have been your wake up call but on a decent income and relatively low essential outgoings this is fixable. Small thing but I never take out appliance insurance and you are paying £250 a year for this. On your income you would be able to replace machines from savings once they are up to accepted level. At £55k though I would say a £1k emergency fund is enough and throw everything at your wife's credit card at 27%. Any chance of transferring that to a 0% card? £29.50 also looks high for insurance on a 3 bed. Did you compare quotes?

Your level of indebtedness is high £65k including car loan is just over one years gross income but it is affordable and if you resign yourself to a few lean years then this will come down by around £18k a year and be cleared in 4 years.

ani*fan · 12 March 2017 at 5:48PM

Hi there :hello:

I was wondering if you have been saving £700 per month, do you have enough savings to pay off your wife's high interest credit card? Like others have said, this debt is costing you a fortune. It needs to be gone as fast as you can possibly manage it. You have put £0 in the savings column so maybe these savings are a new thing? Whatever, the focus needs to be this card.

You don't have anything in your budget for maintaining the car/s. You need to add something here. Incidentally, I'd get rid of your car finance and buy a cheaper one. You can't really afford this on top of the cc debt.

Appliance insurance is high. Just save this money up instead.

Once the target card is gone, you need to find out when all the 0% deals end and focus on the one ending soonest.

A dmp will simply stop interest being added and reduce monthly payments. (And trash your credit score, obviously.) I don't think you need a dmp yet. Most of your debt is on 0%. I don't think you're in a complete emergency just yet but an unexpected life event could completely unbalance you. Like you've said, live frugally, figure out how to keep making big payments and you'll be fine.

dad2twins · 12 March 2017 at 6:21PM

ani*fan wrote: »

Hi there :hello:

I was wondering if you have been saving £700 per month, do you have enough savings to pay off your wife's high interest credit card? Like others have said, this debt is costing you a fortune. It needs to be gone as fast as you can possibly manage it. You have put £0 in the savings column so maybe these savings are a new thing? Whatever, the focus needs to be this card.

You don't have anything in your budget for maintaining the car/s. You need to add something here. Incidentally, I'd get rid of your car finance and buy a cheaper one. You can't really afford this on top of the cc debt.

Appliance insurance is high. Just save this money up instead.

Once the target card is gone, you need to find out when all the 0% deals end and focus on the one ending soonest.

A dmp will simply stop interest being added and reduce monthly payments. (And trash your credit score, obviously.) I don't think you need a dmp yet. Most of your debt is on 0%. I don't think you're in a complete emergency just yet but an unexpected life event could completely unbalance you. Like you've said, live frugally, figure out how to keep making big payments and you'll be fine.

We have only had the surplus for a few months so we have saved it. I agree that we could/should pay off the higher interest CC. We are already throwing £600 per month at the particular card in order to reduce it quickly. Using the savings, it could be cleared by June.

Happier_Me · 12 March 2017 at 6:25PM

I would stick to your current plan, just hit the highest interest card as hard as you can. Like others have said a minimal emergency of fund of £1k and the rest off this card.

Your wife may well be feeling quite vulnerable having had her wake up call. Why don't you plan out the next few years in terms of debt repayments, up to the point where the children are at school and you are back at work and things get easier financially. Having a clear debt free date may help.

You really are tackling this at the right time. I have two children and the thought of taking babies and toddlers on holiday, where your days are filled with sleeps and nappy changes, used to fill me with dread ... So we just didn't do it! Mine are of an age now where they love going away and it really doesn't have to be too expensive.

A few years of frugal living and this could all be sorted.

dad2twins · 12 March 2017 at 6:33PM

I have just been watching a video posted by Martin lewis. I think it's a few years old. It talks about debt crisis. In Martins opinion, if you are able to meet your minimum payments then you are not in debt crisis, even if your debts are very high ( as are ours).

We are able to meet our minimums and then potentially pay an additional £1100 so I do feel better that this is a rectifiable situation. I don't see what we would gain from a formal DMP as I would still want to pay more than the contractual payments. I don't want to drag the debts out.

I appreciate that the 0% cards are not guaranteed to stay at 0% forever, however even in that scenario I reckon we could manage it using the snowball method. I have just run 40k credit card debt through the snowball calculator but put the interest at 20% as a 'worst case scenario'. By paying £1500 per month we could still clear it within 3 years. It would just mean that we would have to pay quite a bit of interest - 10k in fact over 33 months!!! An awful prospect but still preferable to completely trashing our credit file.

We currently have at least 21 months of 0% left so in reality our outstanding balance will be much lower when the promotional rates end. I will of course be looking for new 0% deals when the time arrives, however I don''t want to apply for anything new just yet.

January2015 · 12 March 2017 at 6:35PM

I totally agree - your situation is manageable and you can clear the debts without resorting to a DMP - but that's if your income is going to continue at £750 p/mth.

If I had a choice, with your figures, I would snowball the debts and avoid the DMP. As I said above I wouldn't use any of the house equity to clear any unsecured debts.

Good luck with clearing the debts.

dad2twins · 12 March 2017 at 6:44PM

January2015 wrote: »

I totally agree - your situation is manageable and you can clear the debts without resorting to a DMP - but that's if your income is going to continue at £750 p/mth.

If I had a choice, with your figures, I would snowball the debts and avoid the DMP. As I said above I wouldn't use any of the house equity to clear any unsecured debts.

Good luck with clearing the debts.

My parents are aware of our situation ( not exact figures) and as an absolute last resort, they would have the twins for 3 days per week. In this situation I would take up a part time teaching role or do supply.

I would only consider this if absolutely necessary though as they are both 70 and I just think that it's totally unfair. They are great with the kids but I feel that this is their time now. I will go back to work full time when they start school. THis is when we would potentially look to move house.

cms-help · 12 March 2017 at 7:03PM

You start losing child benefit over £50k and with that take home (presumably after tax and pension contributions) then that's over that amount.

Rather than ceasing to pay receive child benefit, some people argue it is better to accept it and make the tax adjustments through salary. You get national insurance credits for being in receipt of it.

You will also benefit from 30 hours of free childcare (under current arrangements) the term after the twins turn 3 (sounds like that would be the January term). That would give you 3 full days of work then with very limited childcare costs (our nursery charges £6 a day for food/activities with the free hours).

Our double debt problem!!! Do we need help?

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