Which to pay off first? - My SoA

Spiggle

Hello,

This is a little like baring my soul! Anyway, I want to be debt free so I need some help please.

The background is I hit the big 50 this month and would love to be debt and if possible mortgage free by the time I hit my 55th birthday. Oh, I also want to be sensible and ensure that I can still live a little bit!

So here's my SoA (thanks to southernscouser for the link), comments added later alongside, and my questions (and detailed background) are below it:

Statement of Affairs and Personal Balance Sheet[/b]
Household Information
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned.................... 1
Monthly Income Details
Monthly income after tax................ 1188
Partners monthly income after tax....... 993
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2181
Monthly Expense Details
Mortgage................................ 354
Secured/HP loan repayments.............. 63
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 152
Electricity............................. 25 (this and gas paid in one sum)
Gas..................................... 45
Oil..................................... 0
Water rates............................. 40
Telephone (land line)................... 60 (inc sky TV and B/band)
Mobile phone............................ 30 (£15 each pm for me and OH)
TV Licence.............................. 15
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 240 (this can be brought down see my sig)
Clothing................................ 25
Petrol/diesel........................... 100 (often less)
Road tax................................ 15 (paid annually lump sum)
Car Insurance........................... 20 (paid annually lump sum)
Car maintenance (including MOT)......... 20 (paid annually lump sum)
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 10 (regular saving for GD1 needs to be £20 to allow for new GD2)
Medical (prescriptions, dentist etc).... 21 (OH dentist, I'm still NHS)
Pet insurance/vet bills................. 0
Buildings insurance..................... 9 (paid annually lump sum)
Contents insurance...................... 5 (paid annually lump sum)
Life assurance ......................... 24
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 120 (each have £15 pw pocket money)
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 1393

Assets
Cash.................................... 2000 (2 separate ISA for me and OH £1k in each)
House value (Gross)..................... 200000
Shares and bonds........................ 0
Car(s).................................. 5500 (I have no real idea!)
Other assets............................ 0
Total Assets............................ 207500

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 46271....(354)......0.69< (0.19% above BoE currently 0.69% this and 2nd mort due to be paid off Nov 2021)
2nd Mortgage...................7834.....(63).......1.49(this is a 2nd mortgage 1.49% (.99% above BoE) due to be paid off Nov 2021)
Total secured & HP debts...... 54105.....-.........-
Unsecured Debts
Description....................Debt......Monthly...APR
Kitchen HP.....................2606......100.......0
Barclaycard....................1931......46........0 (I currently pay an extra £50 pm on SO - 0% deal expires 11/10)
OH Virgin Money Card...........1253......25........0 (No OP currently - 0% expires 01/11)
Student Loan...................8177......34........NaN(I have no idea of the interest rate but my last statement 07/10 shows interest at £53.34 for 01/04/09 to 31/08/09 and of course the £34 comes directly out of gross salary and is therefore already taken before the net income of £1187.74 is arrived at)
Total unsecured debts..........13967.....205.......-

Monthly Budget Summary
Total monthly income.................... 2,181
Expenses (including HP & secured debts). 1,393
Available for debt repayments........... 788
Monthly UNsecured debt repayments....... 205
Amount left after debt repayments....... 583
Personal Balance Sheet Summary
Total assets (things you own)........... 207,500
Total HP & Secured debt................. -54,105
Total Unsecured debt.................... -13,967
Net Assets.............................. 139,428
Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using IE browser.[/font]

Firstly, let me say that I'm well aware that we are in a fortunate position compared to some on here so I'm grateful for that.

I'm a tart with credit cards and the balances on the two above are what remains of the balance of finance for my car which was bought on a 0% deal in April 2006. Ooh, just remembered I also have an Amex which I pay off in full if ever used. Will have about £200 to pay on that next month. The balances have always been in my name previously. Last year I changed from quite highly paid full time employment to reasonably paid part time employment. As a result my credit limits tumbled and my OH took out a 0% card to take some of the outstanding balance.

When I worked full time we regularly OP the mortgage by at least £100 and normally £200 per month. We also regularly saved £200 per month. The balance of savings was used up on a stunning holiday in summer and then last autumn with a new kitchen our first for 21 years and the last we are likely to install.

Now I should say at this point that our spending was completely out of control and we never totted up our spending. We only started doing that in Februiary of this year when I realised that we were spending £600+ per month on groceries, household stuff and toiletries. We are now successful with the grocery challenge and spend less than £240 per month and will reduce our target next month (party costs in August).

I don't know how to attack the debts, you know in which order etc. My plan (which I really need advice on please) is to use our savings to pay off the B/card balance in a couple of months using our savings pot. Then to overpay the Virgin card and pay off any balance in Jan 11. An alternative is to switch at least the B/card to the A&L zero card as they have our current account which gives me an extra 6 months at 0% and no transfer fees. If I did this should I then OP both the cards?

You see I don't want to make our monthly outgoings so tight I get in to too much overdraft as the 0% on the current a/c ends in Feb 2011. By the same token, I can see that if the cards and the kitchen are paid off the monthly benefit in terms of payments gives us at least £220 per month which could be mortgage OP. Aaarggh, confusing myself again.

Now the HP on the kitchen (£100.22 pm) is 10 months in and remains at 0% until end in Nov 2012. What should I do with that? Should I OP that too?

Sorry this seems very confused I thought I had this straight in my head but writing it down seems to be scrambling my thoughts!

Partly my head is a bit up in the air because I'm fighting with the thought constantly playing in the background that as everything else is 0% I should be chucking anything and everything over at the mortgage because it's the only thing I'm paying interest on. If that is the correct option, should I be chucking it all at the 2nd mortgage?

BTW whenever I say 'I' it relates to us both but OH just can't get his head around money and I do all the accounts/transactions.

[STRIKE] I tried the snowball thing where I got the SoA from and it suggested payments completely backward to my instinct/intuition! It also does not allow for the fact that the credit cards will be out of their 0% period by the time I pay them off meaning that the calculation can't be accurate. Basically the order it gave me was OP the kitchen first, then the B/card then OH Virgin card. It claims that in 8 months the cards and kitchen would then be clear.[/STRIKE]

Doh!!! Sorry I just went back to it because the result was so counter-iniuitive. I took out the student loan, put in the standard rates on the cards and then it did what I thought it should. Well, ish! Suggests OP OH card first then B/card then kitchen. Still suggesting humungous monthly OP though which allows for being clear in 8 months.

The snowball however does not show me how much to OP the mortgage. Is there something else I should be using to calculate that please? Or should I just be concentrating on being debt free before moving on to being mortgage free? I see them all as the same thing - debt - so don't draw the distinction.

Ok, I'm now getting myself very worked up about this and so should sign off and post this so that I can carefully consider any kind comments, suggestions and opinions you may give. Once I have a clear idea of where I'm going with this I'll set up a debt diary (if that's the right thing to do?!?!).

Thanks in advance for any and all help recieved.

Spigs

LittleMoog

Hello

I'm fairly new at this, but here's my suggestions

Since your mortgage is on a low rate, deal with the secured debt first. Ignore the student loan for the time being, you're paying before tax so can just forget about it. Plus, I think it gets wiped when you retire/aged 65 or something, so I wouldn't personally worry too much about it.

That makes your unsecured debt = £5790 and total left after minimum repayments = £618.

Since it's all on 0%, pay the minimums, and put all the spare cash into your ISAs. It will build up and then you can pay the accounts off when the 0% deals end. If you don't have enough in the account then, apply for a 0% elsewhere.
For the kitchen, if it's 0% for it's lifetime, I'd just let it run, unless you're desperate to get rid of it.

Once the unsecured debts are gone, you can keep saving the excess each month to build up a lump sum, or overpay mortgage monthly - don't have one yet so not sure how that works

podperson

I would suggest over-paying the Barclaycard to try and clear it before the 0% ends this year. Then switch to the Virgin cc, same principle. After that would probably be tempted to look at the second mortgage. Since the kitchen is on 0% until end of term I would just let that run.
I guess it's personal preference but I just tend to forget about my student loan and let it come out of my wages, probably because there's no pressure on it

Spiggle

Thanks julespickles,

I think you're absolutely right about forgetting the student loan.

I was thinking about putting the 'spare' cash into the ISAs and paying off debts later especially as they're on fairly good rates. I suppose part of my part of my problem is I'm a bit tired of tarting around on the CC. And the B/card 0% term is due to expire so I just thought to hell with it lets pay it off.

The thing is I really would love to be debt free and soon. At present, I don't percieve there to be any threat to either my or OH employment but in the world we live in today nothing can be taken for granted. So having no debts (and eventually no mortgage) hugely appeals to me.

The other thing I keep thinking about is that my mortgage is a superb rate (for the lifetime) but when interest rates do go up as they surely will in the future my ability to overpay will be hugely diminished.

Oh carp, I'm so confused about saving versus paying off the debts!

Thanks very much for your thoughts.
Spigs

Spiggle

podperson wrote: »

I would suggest over-paying the Barclaycard to try and clear it before the 0% ends this year. Then switch to the Virgin cc, same principle. After that would probably be tempted to look at the second mortgage. Since the kitchen is on 0% until end of term I would just let that run.
I guess it's personal preference but I just tend to forget about my student loan and let it come out of my wages, probably because there's no pressure on it

Thanks podperson,

That's the way I initially looked at it too. I think the snowball tool looked at the higher standard rate on the Virgin card rather than the date of 0% rate expiry so suggested clearing that first.

Would you agree that we should use the savings we have to pay off the CC? As well as OP of course.

Now I'm swinging a little back to my original plan (months ago) of continuing to tart and putting money into ISA instead but then I'd still have debt. Aaaarrrghh, my head is pounding!

Thanks very much for your thoughts,
Spigs

Verbatim

I agree that there's no point in overpaying the kitchen debt if it's 0% for life. If you're sure you can either repay or re-tart when the 0%s run out that also takes off pressure and as julespickles says you could save the spare cash if you can get some interest. However, although your mortgages are on a very low rate now this will change when the BoE puts up the base rate, whenever that is and overpaying now while rates are low will make an enormous difference later when rates are higher. If you have paid a good chunk off by then the interest at the higher rate will be on a much smaller capital so will save you money then. If you're 50 now and don't expect to pay off the mortgages until 2021 that's in 11 years when you'll be 61. None of us knows what our health will be like as we get older, and it's likely that our earning power reduces too. So I'd be inclined to overpay the 2nd mortgage, if that's the one which will have the higher rate, but on the proviso that you'll be able to avoid the higher rates of cc debt when the 0's end.

podperson

To be honest you have a healthy amount left at the end of each month, if you have most of this spare to be throwing at the debts that shouldn't really need to dip into your isa. I know some people do go by the motto that you shouldn't really keep savings if you're in debt but since most of yours are 0% for now or low interest then don't know if it would be worth paying them off straight away and losing the interest on your savings - plus always nice to have a little aside for emergencies if needed.
I would suggest throwing as much extra a month as you can at the barclaycard until the 0% ends in November. If you haven't managed to pay it off by then can decide whether to pay off with the savings or use your option to put it on the other 0% card. Same prinicple with the virgin card.

Spiggle

Verbatim wrote: »

I agree that there's no point in overpaying the kitchen debt if it's 0% for life. If you're sure you can either repay or re-tart when the 0%s run out that also takes off pressure and as julespickles says you could save the spare cash if you can get some interest. However, although your mortgages are on a very low rate now this will change when the BoE puts up the base rate, whenever that is and overpaying now while rates are low will make an enormous difference later when rates are higher. If you have paid a good chunk off by then the interest at the higher rate will be on a much smaller capital so will save you money then. If you're 50 now and don't expect to pay off the mortgages until 2021 that's in 11 years when you'll be 61. None of us knows what our health will be like as we get older, and it's likely that our earning power reduces too. So I'd be inclined to overpay the 2nd mortgage, if that's the one which will have the higher rate, but on the proviso that you'll be able to avoid the higher rates of cc debt when the 0's end.

Thanks Verbatim, I'm fairly certain I could re-tart which would take the pressure off as it's the B/card one I'm concerned about due to November speeding towards me like a juggernaut! When I worked full time I was told that my credit rating was 'gold plated' or something like that and I haven't had any defaults against me since. So I'm probably OK to re-tart (even in the trying times we're surviving in) but have to allow for lower credit limits.

You're spot on about the BoE rate and sum up my concerns very succinctly. I think there is a tool hidden somewhere on here similar to the snowball but for mortgages so I'll check that out and see what difference £x per month makes to the mortgage.

Then I'll post on here to get some advice on how to split my excess toward mortgage OP and/or savings and/or CC OP.

podperson wrote: »

To be honest you have a healthy amount left at the end of each month, if you have most of this spare to be throwing at the debts that shouldn't really need to dip into your isa. I know some people do go by the motto that you shouldn't really keep savings if you're in debt but since most of yours are 0% for now or low interest then don't know if it would be worth paying them off straight away and losing the interest on your savings - plus always nice to have a little aside for emergencies if needed.
I would suggest throwing as much extra a month as you can at the barclaycard until the 0% ends in November. If you haven't managed to pay it off by then can decide whether to pay off with the savings or use your option to put it on the other 0% card. Same prinicple with the virgin card.

Thanks again podperson, I was lucky in getting the guaranteed 2.7% above base at A&L (I know I'll suffer when I want to transfer too!) which was why my original plan back in April was to save and then pay off any debts next spring with what's in there. The problem seems to have been that I haven't put in anywhere near as much to savings as I expected.

As I said above, I think I need to look more thoroughly at the effect of OP on the mortgage and then reconsider after seeking some more advice on here.

Thanks again for your help it's much appreciated,
Spigs

Spiggle

Me again ,

I found the mortgage OP calculators over on the MFW board. They gave some really heartening results.

If we OP the smaller 2nd mortgage (higher interest rate @ 1.49% currently) by £150 per month that will be clear by October 2013. If we also pay £200 per month off the main mortgage (0.69% currently) that would be paid by October 2017. If we do go down that road though I would chuck the £150 at the main mortgage from October 2013 on. An OP of £350 seems a reasonable place to start.

I know my SoA says there is £596 surplus but I'm not sure I can say where that is at the moment. Oh, just found that the £50 I overpay on the B/card is not calculated in the SoA so the surplus should read £546. (I think )

I also used one of the calculators to look at how much the monthly payment on the main mortgage would rise to if the BoE went up to 5% and it came out at around £461 per month. This went some way to allaying concern at the thought of interest rate rises.

Decisions, decisions, ...

I think I'll chuck a few hundred surplus at the B/card no matter what. Maybe ought to lose the lazy streak and re-tart it anyway. Then can seriously attack the mortgage on OP from October. (This month is likely to be a bit weird with money due to party, meals out, and we're both off work for three weeks.) The calculators certainly suggest I could achieve being both debt AND mortgage free in 5 years. That would be so fantastic.

Still grateful for any advice based on my initial query or on this one.

Thanks in advance for any thoughts.

All the best,
Spigs

Spiggle

Hello again,

I just wanted to update what I've done since the beginning of the week.

Redid my budget using the MSE tool (rather than the SoA) as that seems to capture more spends - I have £416.36 left unallocated each month.

Arranged for the mortgage to be paid at a more reasonable date - i.e. day after my salary goes in to bank.

Setting up SO to OP mortgages from October 1st won't be as much as originally thought (see below re tarting).

Going through a process of piggybanking - keeping everything in the current account may earn me interest but it also doesn't clearly identify the regular expenditure and what is available when.

I had another look through the site for CC to tart to. Found that Santander offer their ordinary CC (not the Zero) to existing customers for 13 months (Zero only 6 mths) with NO BT fee. (Couldn't find that detail anywhere on their website though!) So, just gone through the application process on the 'phone, they accepted me and the credit limit allows me to transfer both B/card and OH Virgin balances for no fee cost and repay over 13 months at 0%. After paying a couple of hundred extra off one of them now to bring it in line with the credit limit, I'll pay £230 per month over 13 months and it will be completely clear then.

The remaining unallocated money (£230) will be split to make £180 per month OP to the mortgages and £50 per month to a holiday fund.

This seems to me a sensible way forward as I won't need to touch the savings so I have a safety net or rainy day fund. I will be in control of the payments so that I can be flexible if something unexpected arises. And I'll still have a foreseeable DF/MF which may not quite coincide with my original target of 5 years but is still a reasonable 6-7 years. Got to be better than 12 years which takes the OH to 67 yrs young!

If you think I have missed something please do let me know. Any thoughts, suggestions and comments will be gratefully recieved. Thanks in advance.

All the best,
Spigs