How would you go about this debt repayment?

ChrisFilter

Hi All,

Firstly, my thanks in advance for your advice. It's much appreciated.

My wife and I have a fair amount of unsecured debt between us, basically due to being far too hedonistic in our youth but also after a nightmare house purchase and the like. Either way, I'm aware it was irresponsible.

Anyway, we can afford the debt, we have a decent joint income, but obviously with the recession sinking it's claws in we'd like to start growing up a bit. Also, we're not getting any younger and would like to have kids in the not too distant future and it'd be nice to be able to survive on a single salary.

We're 26 and 34, own our house (£170k mortgage). We have a joint income of about £4500 a month. Here are the details of our debts:

Personal Loan One: -£8000
Personal Loan Two (: -£7000
Credit Card One: -£11,500
Credit Card Two: -£5000
Credit Card Three: - £1500
Credit Card Four: -£800

What would be your advice on the fastest and best way to reduce that debt mountain? I don't mean money saving tips so much as debt repyment tactics. If we went the IVA route would that endanger the ownership of our house? What are the risks? Would it even be possible to get one as a couple? The debt is spread out between us, £9,500 in one name £13,500 in another.

Snowballing is also the way forward from my readings on here. Our loans are currently being paid back at £325 each a month, should we lower that and increase the credit card repayments or is it best to leave them be?

Basically, we can cope, but want shot of them ASAP. Any advice appreciated

Thanks!

poorandindenial

My vote goes to snowballing.

Personally I would leave the loan payments and concentrate on liberating as much money as possible to throw at the cards (loans sometimes are not very flexible either although you know your contracts better than me) you also need to consider the APRs in this equation too.

Have you done the snowball yet?? www.whatsthecost.com/snowball.aspx

IVAs are generally BAD for most people (many fail once they have been set up) and as you can afford your repayments it is unlikely your creditors woud go for it (no matter what the shonky companies say - only take debt advice from this lot: http://www.moneysavingexpert.com/loans/debt-help-plan#help

And a guide to IVAs (for the sake of completeness: http://www.moneysavingexpert.com/loans/pdf-iva-guide.pdf)

Also do an SOA (www.makesenseofcards.com and click on the box that says statement of affairs calculator, then post your SOA on here (there is a special button the site) and let us have a good rummage to see if we can identify areas that you coukd free up more cash.

LilacPixie

DO NOT GO THE IVA ROUTE.

Snowballing is the way to go. You are comping with your curret levels of repayment so there is no need to consider anything else.

get ann you card apr's together plus your loan detail and find out if the loans can be overpaid without penalty.

Russki

The cheapest way to solve your debts is to stop payments on them all and stop communicating with your creditors. If you can put up with going into default and getting lots of letters threatening you with this, that and the other....eventually, after about 2 years you will be sent settlement deals which will be for around half of the value of each of your debts as they stand now. As long as you put money aside in the meantime, you will be in a position to pay and clear your debts way cheaper than any other method except bankruptcy. You would have to be willing to lose your credit rating, etc....but in your case it might be a blessing.

dancingfairy

Am not sure I would go with Russki's advice to be honest. Why ruin your credit rating when you are coping and looking to make more payments. It is of course an option but I would prefer to look at other options first.
The general rule is to pay the minimum on the debts and then look at paying any spare money at the ones with the highest aprs and so on (ie snowballing). As someone said though it does depend on whether you can overpay the loans or not.
The other way some people like to do it is to start with the smallest and pay that off and then on. It might not be the most moneysaving way but it gives people a target to aim at.

Would definitely do an SOA though.

ChrisFilter

My SOA - thanks everyone

Monthly Income Details
Monthly income after tax................ 2250
Partners monthly income after tax....... 2330
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 4580

Monthly Expense Details
Mortgage................................ 965
Secured loan repayments................. 0
Rent.................................... 0
Management charge (leasehold property).. 60
Council tax............................. 129
Electricity............................. 30
Gas..................................... 30
Oil..................................... 0
Water rates............................. 25
Telephone (land line)................... 11
Mobile phone............................ 100
TV Licence.............................. 11
Satellite/Cable TV...................... 30
Internet Services....................... 20
Groceries etc. ......................... 500
Clothing................................ 100
Petrol/diesel........................... 30
Road tax................................ 10
Car Insurance........................... 30
Car maintenance (including MOT)......... 10
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 20
Buildings insurance..................... 0
Contents insurance...................... 20
Life assurance ......................... 17.5
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 300
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 2448.5

Assets
Cash.................................... 0
House value (Gross)..................... 200000
Shares and bonds........................ 0
Car(s).................................. 2500
Other assets............................ 0
Total Assets............................ 202500

Secured Debts
Description....................Debt......Monthly...APR
Mortgage...................... 172500...(965)......5.24
Total secured debts........... 172500....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
loan 1.........................7000......325.......14
loan 2.........................8000......325.......11
cc1............................11500.....400.......18
cc4............................800.......50........19
cc3............................1750......100.......29
cc2............................5000......200.......20
Total unsecured debts..........34050.....1400......-

Monthly Budget Summary
Total monthly income.................... 4,580
Expenses (including secured debts)....... 2,448.5
Available for debt repayments........... 2,131.5
Monthly UNsecured debt repayments....... 1,400
Surplus(deficit if negative)............ 731.5

Personal Balance Sheet Summary
Total assets (things you own)........... 202,500
Total Secured debt...................... -172,500
Total Unsecured debt.................... -34,050
Net Assets.............................. -4,050

GirlRacer_2

Are you able to move some of the smaller credit card debt onto a 0% Balance Transfer credit card that way your not paying interest on it.

Rikki

I would use the surplus to clear cc4 in two months that would be gone so one less debt to worry about. Then make over payments on cc3 as this has the highest interest rate. Again you could clear this in three months.

You would certainly feel a lot better if you had two cards completely paid off in six months.

Rikki

ChrisFilter wrote: »

My SOA - thanks everyone

Monthly Income Details
Monthly income after tax................ 2250
Partners monthly income after tax....... 2330
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 4580

Monthly Expense Details
Mortgage................................ 965
Secured loan repayments................. 0
Rent.................................... 0
Management charge (leasehold property).. 60
Council tax............................. 129
Electricity............................. 30 This amount seems low
Gas..................................... 30 This one too.
Oil..................................... 0
Water rates............................. 25
Telephone (land line)................... 11
Mobile phone............................ 100 This is high
TV Licence.............................. 11
Satellite/Cable TV...................... 30 *
Internet Services....................... 20
Groceries etc. ......................... 500 *
Clothing................................ 100 *
Petrol/diesel........................... 30
Road tax................................ 10
Car Insurance........................... 30
Car maintenance (including MOT)......... 10
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 20
Buildings insurance..................... 0 Is this included in your house insurance?
Contents insurance...................... 20
Life assurance ......................... 17.5
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 300
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 2448.5

Assets
Cash.................................... 0
House value (Gross)..................... 200000
Shares and bonds........................ 0
Car(s).................................. 2500
Other assets............................ 0
Total Assets............................ 202500

Secured Debts
Description....................Debt......Monthly...APR
Mortgage...................... 172500...(965)......5.24
Total secured debts........... 172500....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
loan 1.........................7000......325.......14
loan 2.........................8000......325.......11
cc1............................11500.....400.......18
cc4............................800.......50........19
cc3............................1750......100.......29
cc2............................5000......200.......20
Total unsecured debts..........34050.....1400......-

Monthly Budget Summary
Total monthly income.................... 4,580
Expenses (including secured debts)....... 2,448.5
Available for debt repayments........... 2,131.5
Monthly UNsecured debt repayments....... 1,400
Surplus(deficit if negative)............ 731.5

Personal Balance Sheet Summary
Total assets (things you own)........... 202,500
Total Secured debt...................... -172,500
Total Unsecured debt.................... -34,050
Net Assets.............................. -4,050

* these are areas you can save money but as you have surplus already you can make headway on you debts. There is room to save more if you wanted to.

gallygirl

Rikki wrote: »

I would use the surplus to clear cc4 in two months that would be gone so one less debt to worry about. Then make over payments on cc3 as this has the highest interest rate. Again you could clear this in three months.

You would certainly feel a lot better if you had two cards completely paid off in six months.

I agree with Rikki. Financially the best thing to do would be to pay off cc3 1st - however you do have a fair bit of spare cash so could get rid of cc4 quickly. The feelgood factor from doing that would spur you on & probably save you much more long term! (Especially if you put all debts in signature then can cross one off in 2 months! )

Good luck!

GeorgeUK

Council tax............................. 129
If paying over 10 months, ask to pay it over 12 (from January)

Electricity............................. 30
Gas..................................... 30
Check the comparison sites to see if you are getting a good deal.

Mobile phone............................ 100
PAYG?

Satellite/Cable TV...................... 30
Internet Services....................... 20
Is this a package deal with the phone? Would that be cheaper?

Groceries etc. ......................... 500
How many is this for? You could look at the old style board for meal plans - buy the ingredients you need and stick to that. You could move down a brand (shops own)

Clothing................................ 100
Every month? Could you half his?

Entertainment........................... 300
Halve this for a while until the debts are better under control.

Even before you make any savings in your expenditure, you seem to have over £700 spare each month. Are you paying the minimum towards the debts or have you been overpaying them?

The APR's for those loans are not too great. Are you paying PPI on this too? can you cancel it? I'd also look at reclaiming bank charges or credit card charges if you've had any.

I'd check to see how many credit checks each of you has had lately. You can check your credit file free at experian (if you cancel within 30 days). You can have about 3 credit checks in a 6 month period before your credit score is affected.

As girlracer says, it may be possible for you to get a creditcard at 0% APR. If you can move some of your existing card balances to those then you may also be able to take advantage of other offers from your existing banks such as 0% for 6 months or low interest life of balance offers. These are often offerred if you have a card with a nil balance and are an incentive to stop you closing the card. As you are an existing customer, these also don't usually require a credit check to be done.

After the balance transfers are done, you should be able to see your new debt free date in the snowball calculator and the amount of interest you pay is significantly reduced. The you just pay the minimum to all cards and throw everything else at the debt with the highest APR.

After that you can hopefully start saving to get rid of the loans - really not a nice rate.