Large Debts £42k - I wasn't worried but I am now!

wotnoshoeseh

nickmack,
Just one thing that I noticed. Rather than sell your house as westernpromise advocated, and renting, would you not be better off re-mortgaging and making use of the equity of the house to relieve some of your debts? I haven't done the sums on this, but, if it's 5% of the house value either way then there may be a benefit to be had in further equity gained in the house.

Everything else that western promise has mentioned is pretty good to go, even though it's a bit blunt and forthright. For you in your position it probably does not make easy reading.

I think that you have had your light bulb moment now, and, if not, it's no fault of the contributors on this web site.

I wish you all the very best in your quest to become debt free and to get your debts under control.

Good luck,
wotnoshoeseh

jeff1969

Is the life insurance being paid twice? by this I mean are you paying as part of your mortgage and also paying for a seperate insurance policy?

Are the policies for both of you, if so see what it would cost to just cover the main earner.

But as stated by westernpromise, it would seem that chipping away at the edges of things will not make enough of a difference to keep the debt at it's current value, never mind reducing it :-(

Jeff

westernpromise

jeff1969 wrote:

But as stated by westernpromise, it would seem that chipping away at the edges of things will not make enough of a difference to keep the debt at it's current value, never mind reducing it :-(

That's the real issue IMHO - the problem is structural. Remortaging might help but

1/ nickmack may not be able to get a remortgage offer for 100% of property value, especially with the other debts, and

2/ although if he could, it would pay off £20k of the debt, it will do so at the cost of increasing the monthly mortgage outlay, probably by about £150. This will not help him turn the tide.

Selling and then renting something similar can deliver a worthwhile saving in monthly cash outlay which he can direct at this debt. The cost is a temporary exit from the property market, but the debt seems to be growing faster than the house looks likely to, so no loss. And right now, nickmack doesn't own a house, it's more the other way round - the house owns him. His instinct to buy has taken some decisions for him which if he were completely dispassionate he would probably have done differently.

If nickmack does nothing, then on the basis of what he's told us, I reckon in a year's time he'll owe £46,000 and rising. If he does what I outlined, takes control, and gets mediaeval on his debts' !!!!!!, he'll owe ~£24,000 and shrinking. To my simple mind, that is not a tough call.

In about 2 years, he could probably reduce what he owes to a level where he can start playing the old 0% balance transfer game with a decent chunk of it. Just as savings grow exponentially through the magic of compound interest, debts can be shrunk exponentially the same way.

It is unquestionably going to be tough, but as I suggested before, he's been through some major and valuable life events. You never hear people saying they wish they'd wasted less money on their education; or that they wish they'd had a more forgettable wedding. So yes it's going to be tough, but yes it was also worth it. He won't be sorry he did those things, but meanwhile there is a bill to be faced up to. I really hope it works out.

harrie_2

nickmack wrote:

Help!!!! Any advice would be gratefully received, even if it's insults lol.

I knew that we owed quite alot of money, but it didn't really concern me too much until a few months ago.
I used to think, it's ok, everyone owes money, it's the culture nowadays. I can repay it in years to come. Only now things are catching up.
We owe in total about £42,000. Before I worked it out, my guess was about £30,000, so I'm feeling slightly more uncomfortable. It's very close to the point where we're struggling to make the repayments and pay all bills etc.

The debt came about because of my university borrowing and getting married and buying a house. My parents have never been rich and so they haven't been able to help with anything.

I've already done some trimming down by shifting CC balances, moving energy supplier, changing BB supplier, getting Sky discounted and restricting food budget but it doesn't seem to be enough. We have no savings of any kind.

As I look after most of the money, I had to explain the situation fully to my wife. I think she's more worried than me, but I'm pretty concerned.

We don't live an extravagent lifestyle at all. We've not been on holiday for years, we only go out once every two weeks to the pub. Neither of us smoke. The only real luxury we have is Sky Digital, which is useful to stop us going insane as we spend alot of time in!

I thought about getting a debt consolidation loan for £25,000 repayable over 10 years to bring the monthly repayments down, but will anyone lend me that amount as I owe quite alot?

The debt consists of (all rounded up to nearest £):

DEBT APR OUTSTANDING
Student Loan 2.6% £4830
Cahoot Loan 5.9% £5219
Egg Loan 6.7% £4931
Cahoot CC 10% £1951
Egg CC 14.9% £5663
Mint CC 14.9% £4892
Morgan Stanley CC 15.9% £2850 (BT- 3.9% 6mnths)
Halifax CC 15.94% £6328 (BT - 0% 6mnths)
HSBC CC 18.4% £5000 (BT - 5.9% 9mnths)

Monthly Income
My Wages £1500
Wife's Wages £825

---

TOTAL IN £2325

Monthly Outgoings
Student Loan £120
Cahoot Loan £222
Egg Loan £129
Min CC Repayments £625
Mortgage £768
Council Tax £100
Car Ins £48
Electricity £60
TV Licence £11
SH Pension £50
Life Ins £55
Phone Bills (2xMobile, 1xLandline) £85
Broadband £15
Sky TV £32
Petrol £160
Food £200

---

TOTAL OUT £2680

you got alot of good advice my situation is different my husband was in a good job good pay we had good life style he took ill and had 2 give up work my debt 32k i was in a bad way wish i new about this forum then i went 2 cab they got in touch with my creditors and sorted me out a budget husband permanet sick now but they will still help u if u r employed cccs is good my friend went there we get by now no more hols but i sleep at nite banks and credit cards make it 2 easy 2 borrow good luck people on here alot more experience than me shirley

scholt

westernpromise wrote:

The replies you've had so far are well meaning but let's face it, your problem here is that your debt burden is insupportably huge compared to your incomes.

As a quick rule of thumb, anyone whose debts exceed their gross income is in bl00dy trouble.

You said you made about £1,500 a month and the missus £800-odd. I make it that your gross earnings must be about £25,000pa, and hers about £13,000. So you have debts of £42,000 but gross annual earnings of only £38,000.

That's the problem right there, matey. In monthly terms, it means that your minimum expenses already exceed your income by £350 a month. Including the interest that's accumulating, you are getting in deeper at a rate of well over £4,000 a year. Your incomes are not going up by £4,000 a year, are they? No, thought not - so holding out for pay rises, chipping away at the gas bill, and shopping at Netto aren't going to solve a problem on this scale. Even if they were, are you really going to sit home for the next 15 years eating Netto baked beans and living like a hermit? I don't think so.

You need to step back from the situation and restructure your financial life, IMHO, otherwise you aren't going to get out of this one.

If your house is worth £140,000, sell it and collect the £20,000 equity. Please don't get hung up on the idea that renting is 'money down the drain'. It is not. When you rent a house, you rent it for roughly 5% of its value. When you buy a house, what you rent is the money that buys it - also at about 5% a year. It's exactly the same thing, with the only difference being that until recently, houses appreciated a bit.

You'll have say £15,000, after costs and early redemption fees. Use £14,000 of that to clear your Morgan Stanley, Halifax, and HSBC debts. Use the rest as a deposit to rent an identical property to what you have now. On current rental yields of about 5%, a £140,000 house will rent for about £600 a month.

Doing this will roughly halve your credit card outgoings and renting will save you £168 versus the mortgage. So you are £500 a month better off.

Next, cancel or freeze your pension and life / CI insurance arrangements. You cannot afford to budget for crises that may happen in the future, when you are facing a genuine one which is maturing rapidly right now. You are young enough to resume these later in life. And if your car is worth £1,000 or so then make sure you have third party or at most TPFT insurance on it. After allowing for the excess, comprehensive only gives you a few hundred quid in benfits and is probably quite a lot pricier.

That's another £100 saved.

Now you can start thinking about micro-savings: managing expenses better; cashback credit cards (paid off every month) for day to day spending, eating German groceries from Netto, freebies from work (stationery, phone calls, etc) and so on.

You thus go from being £350 a month underwater to being £300 or so per month in surplus. That surplus goes towards your debts, the worst first. Don't get preoccupied with paying off individual cards. Cards are just a vehicle for debt. Attack and kill the worst interest rate first.

Once you've done all that, you have done all you can to reduce costs. Your only remaining line of attack is to start earning more money. You need to be completely focused on this. Will selling stuff on eBay make you more than kissing @rse at work? If so, do the former rather than the latter. Are you in your dream job? If not, why aren't you looking for it? Very few people on good money got there by being unionised or lucky. Most people got there by identifying the most lucrative career path open to them and relentlessly pursuing it. Many people who are skint have never ever done this and regard their career as something that happens to them rather than as something they could have influenced. Also, why does the wife only make half the national average wage?

After a year of the above you'll have gone from being £42,000 in debt to being about £24,000 in debt. The steady reduction in the minimum payments you have to find, and the likely steady but unspectacular improvement in your earnings, will means you can squeeze this debt harder over the next few years.

Incidentally your situation is not discreditable to you. Up to your bottom in debt you may be, but at least it's from specific things that are unavoidably costly - student loan, buying a house, getting married. Most people who do those things go into the red from doing them, so a bit of debt is not unreasonable. You've just let it get a bit out of hand - but it is fixable. Being in debt is like being fat - it takes a long time to get tha way and it takes an equally long time to reverse it.

Best of luck.

Great post - but I stand by my economy lentils

Feej_2

Hi Nickmack,
The real issue here, just having read through this thread, is whather your wife can accept the logic as detailed by WP behind the advice to sell the house. You say she would 'go bananas' as house purchase was a real achievement, but to me this is the nub of the problem.
Either way, you've got a tough time ahead of you. The fact that you've already made cuts to your outgoings before posting here means there's not much slack compared to some, so WP is right that desperate times require despreate measures.
Relationships fail all the time in the face of financial problems and only you two can sort out between yourselves how you're going to handle this, but having that discussion and making a decision together is important - there is too much potential for recrimination otherwise, which is corrosive and nasty.
I detect a desire on your part to protect your wife from the worst if you can as you have been managing the money and feel responsible for the situation you're in, but when in a tight spot us women are usually very resourceful. Anything you don't decide and agree together now may well came back and bite you in the future.

If you decide to sell and proceed as WP details this is going to be emotionally difficult but if you end up being repossessed it would be worse as you wouldn't salvage anything out of it to help with the debt.

All the best - perhaps your wife could post with her perspective?

Feej

whizzing

Hi Nickmack

I hope you have not abandoned reading this. I think you were probably shocked by what Westernpromise had to say. If you feel your wife could not bear to sell your house, then maybe the following might be more acceptable.

Move out of your house and rent it out for one year. You need to find alternative accomodation. Best option would be if you could move in with family but failing that you need to find a house share - just like you were 2 students. Try to share with another two people so the bills etc will only be half yours. You should get two rooms and can set one up as a bedroom and the other as a living room. The mortgage costs can be deducted from your rental income so you won't have tax to pay.

Ask family and friends (especially ex-students who might feel sympathetic), all these people who atended your wedding to lend your £1000 over 10 years at 0% interest. If they offer less money or a shorter period take it but remember no interest!!

Both of you need to get an extra job working one night a week preferably cash in hand e.g babysitting,cleaning,gardening.

Cut back on all expenses ( mostly will be done by house sharing ) But also reduce food,
life insurance, car insurance, phones Stop paying Pension. Sort out Phone and Broadband with work.

Sell items not used before renting. Amazon, E-bay, Car boots etc

Get a money making hobby on a Saturday or Sunday. (Alternatively you could work, however I expect you would rather spend the time together doing something). Possibilities are:
1.pick up items at charity shops, bric a brac stalls and then sell on e-bay etc.
Specialise in something you like.
2.Take up "making" activity and sell. eg cards,cakes,duvet covers.
3. Garden work in exchange for use of greenhouse -sell summer plants (very lucrative)

Ask companies you have loans and credit cards with to move credit card balance to loans.

Any loans you receive from family /friends should be used to pay off highest credit cards first.

Never ever don't pay back your family/friends on time.

After one year you should be able to move back into your house but must continue with extra jobs, extra money making hobby and cut backs until you have paid off all your debts. You should also try to remortgage at this time and use the extra to pay off debts which are at a higher rate first.

Please do you sums carefully and see if this might work for you. A friend did all of the above, although her position was not as bad as yours and she did not have to remortgage. She also managed to pay back all her friends within four years

meanmachine_2

I find it extraordinary that people suggest "remortgaging" the house.

I assume most people on here don't understand that means. It doesn't mean free money, it means more debt secured against the house.

It means turning 25% equity into zero equity.

And I'm fed up with people trotting out the usual crap a la "yes, you must cancel sky and get freeview". Firstly, the OP said it was their only pleasure; secondly it is not the same is freeview; thirdly if you've already got Sky then at least downgrade to FreeSAT, which will make use of that dish on the side of the house and fourthly it really isn't going to make a jot of difference in this case.

I'd drop to an I/O mortgage rather than sell the house. Remember, selling costs a huge amount of money, it's very disruptive and renting will require a deposit.

And no, the lender won't give a monkeys. In fact, the best advice is to explain to the lender what is going on and they'll probably put you on an emergency rate for a while.

You need to cut your mortgage by at least £300 a month - then you'll stop disppearing down a black hole of debt.