Credit Card Debt Spiral... SOA

MissCellaneous

Hello everyone,

It's about a week and a half after payday, and we have no money left. Again It'll be the CC just to buy food/petrol by next week. We need to kick our spending habits and this vicious circle so badly, it's making me and my partner miserable, stressed (along with high pressure jobs, mine pretty low paid) and argumentative, and it has to STOP.

I'll post my SOA below (also, please don't judge me too harshly, but we've actually done this before, and we're now here again - making it a double failure), but I think basically what is happening is that we start by spending too much on 'things' without having the money up front (breaks, things for the house, electrical goods etc) that we end up with massive chunks to pay back before we know it. This panicks us, and we try to pay so much back that we cripple ourselves, and end up having to spend on CCs just to try and feed ourselves by the end of the month. And repeat...

I know the answers should seem obvious, but I'm struggling to get out of this.

You may know how it goes - you go mad at the beginning of the month etc, make big CC payments, look at your 'disposable' at that point and you tell yourself you'll be ok, then before you know it you're stoney broke and the beginning of the month is a distant memory. And you spend to reward yourself sometimes too, or have moments where you throw caution to the wind, because otherwise life 'isn't worth it'! My partner is actually worse than me in this respect (I don't mean to be unkind but it's true) - he spends and associates it with fleeting 'happiness', and he spends big, too.

The gap between our wages is growing too, and I'm struggling with this. I'm hoping for a raise/promotion this year but won't hold my breath. I can't contribute to so many things and that puts a strain on us too - say if my partner wants to go to a gig (one of our main drains - we don't go out otherwise though), he has to pay for both tickets which can be very expensive. I also continue to contribute equally to all bills that are shared.

This month (not included in the SOA as that's covered by the 'min' payments on the CCs) we paid off 578.93 between us in credit card payments, to give you an idea.

Here's the SOA:

Statement of Affairs and Personal Balance Sheet
Household Information
Number of adults in household........... 2
Number of children in household.........
Number of cars owned.................... 2
Monthly Income Details
Monthly income after tax................ 1312.53
Partners monthly income after tax....... 2222.85 (I've added 100 to this - my partner gets 'on call' money dependant on his hours each month, it's generally around 200 minimum, but never less than 100)
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 3535.38
Monthly Expense Details
Mortgage................................ 730.9 (overpaying by 100)
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 7.5
Council tax............................. 130
Electricity............................. 29.75 (Paid as 'dual fuel' with below)
Gas..................................... 29.75
Oil..................................... 0
Water rates............................. 28.68
Telephone (land line)................... 0
Mobile phone............................ 40 (one 25, one 15)
TV Licence.............................. 12.12
Satellite/Cable TV...................... 38 (Includes telly, bb and landline plus 5 in calls)
Internet Services....................... 3.65 (A couple of personal hosting/domain accounts)
Groceries etc. ......................... 160 (This never, ever seems like enough but I'm too scared to change it as I feel we can never afford more)
Clothing................................ 0 (I only ever feel guilty when I buy clothes, I don't know what we actually end up spending, but it's only when we 'must')
Petrol/diesel........................... 230
Road tax................................ 36.66 (Oops, sorry for getting this wrong before)
Car Insurance........................... 89.22
Car maintenance (including MOT)......... 8.33 (Only MOT cost here, not sure about unexpected costs e.g. MOT results etc)
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 9.57
Buildings insurance..................... 6.95
Contents insurance...................... 5.33
Life assurance ......................... 7.67
Other insurance......................... 32.06 (Income protection x 2)
Presents (birthday, christmas etc)...... 53.33
Haircuts................................ 15
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Window Cleaner.......................... 6
Total monthly expenses.................. 1710.47

Assets
Cash.................................... 0
House value (Gross)..................... 132000
Shares and bonds........................ 0
Car(s).................................. 6500
Other assets............................ 0
Total Assets............................ 138500

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 181236...(730.9)....4.04 (This includes interest and payments since we bought the house in Nov - think I've done this wrong?)
Total secured & HP debts...... 181236....-.........-
Unsecured Debts
Description....................Debt......Monthly...APR
Graduate Loan..................361.78....180.8.....7.6
Graduate Loan (Car)............2212......221.2.....7.6
MBNA Card......................497.12....25........0
Loan from P's Parents..........5690......300.......0
HSBC Card......................505.85....50........0
MBNA Card (Partner)............711.7.....25........15.9
Total unsecured debts..........9978.45...802.......-

Monthly Budget Summary
Total monthly income.................... 3,535.38
Expenses (including HP & secured debts). 1,710.47
Available for debt repayments........... 1,824.91
Monthly UNsecured debt repayments....... 802
Amount left after debt repayments....... 1,022.91
Personal Balance Sheet Summary
Total assets (things you own)........... 138,500
Total HP & Secured debt................. -181,236
Total Unsecured debt.................... -9,978.45
Net Assets.............................. -52,714.45
Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using IE browser.

There's certainly a black hole there that our money is going into as I think the figures above 'look' ok - I think some of it has to do with the fact that we struggle with the grocery budget and never really spend that amount. Also, some of those monthly costs like car tax that aren't really monthly - we never have money set aside for those each month. We end up struggling in the month that thay are due instead.

I've been especially worried as we have some big necessary costs to do with the house coming up and I don't know how we'll manage them, I feel like I'm wishing the months away all the time. I can't even contemplate the cost of decorating the house we bought, we've managed one room (and that was on the CCs!). Also, my partner doesn't have any provision for a pension yet (we're 27).

I'm sorry if this post seems like a bit of a brain dump, but this is a very low sunday for me.



Thanks in advance, everyone, I'd be so grateful for some help to make this right, I feel so unhappy all the time. x

bottleofred

Hi Misselaneous,

I may be wrong, but I've calculated your total outgoings to be around £2500, which in theory should leave about £1000 per month. If this is the case, you need to start a spending diary (one each) and you must both put absolutely every penny spent into the diary to ensure you know where the money is going. You can get a small notebook to use as a spending diary, but you must be disciplined and put absolutely everything into it (even a packet of chewing gum!). You'll also need to enter something for entertainment and clothing, as nobody will expect you to stay in or never ever buy clothes. Nothing else other than your car insurance and road tax (other than the mbna card) looks that expensive though. Apologies if I've missed something.

talana

Mortgage................................ 730.9 (overpaying by 100)

Why are you overpaying the mortgage when you have other, more expensive debts? Makes little or no sense. Clear others first.

Road tax................................ 440

Not a monthly figure I'm guessing! Amend as necessary

You sound as if you're struggling big time to get by every month.
However, according to your soa:

Amount left after debt repayments....... 1,022.91

You need to get to the bottom of where this is going. That's a lot of money to disappear into a black hole every month!! As you say, the rest of your figures on paper don't seem unreasonable.

Marisco

Yes, must agree "on paper" it doesn't look too bad! Have you tried leaving your cards at home when you go out/shopping? What helps me a lot is that we have our DD's and SO all to go out on the 1st of every month (this was because oh gets paid on the last day of every month) but tailor accordingly. It takes a bit of wrangling round to begin with, getting everyone to agree to moving them, but I've found it a great help. After everything has been paid at the same time, you then know what is left is "yours". I don't have cards (only debit) so either pay with that or actual money, it's amazing how the mind is concentrated when you see the money handed over;) It does make you stop and think "do I really need that":)

kingfisherblue

When I was married, my ex and I had a joint 'bills account'. On the last day of each month, we transferred enough money to cover all of the direct debits, rounded up to the next £100. I think the bills came to about £557 and we transferred £600. We didn't have a debit card for this account, only a cheque book, which meant that we had to go into the branch if we wanted to withdraw any money from it.

This served two purposes - we always had the money to pay the bills, and we had a chance to build up a small amount of savings (which we used to pay for larger items, such as road tax).

Our ordinary account was then used to pay for everything else - groceries, petrol, etc. We could divide the amount left by four or five (depending on how many weeks in the month), and had to stick to that budget for whatever we needed.

Now that I'm on my own, I don't have a separate bills account, but I pay cash for everything. If you are handing over hard cash, instead of a card, it makes you stop and think whether you really need it or not.

You seem to rely on credit cards a lot, so resisteing the temptation will be hard. Have you considered reducing the amount of cards you have? You can't close the acccounts until they are paid, but you could cut up the cards so that you can't spend on them. If you think you really do need a card, keep just one. Wrap it in plastic and freeze it in a large jug of water. If you think you need to use the card, let it defrost naturally. By the time it has defrosted, you will have had time to think about whether you really do need the item or if you can manage without.

It might help to break the cycle that you are in.

Good luck x

pennypusher

You obviously should have lots left over at the end of the month. Can you check back through previous bank statements to see where you have been spending your money? Just a few suggestions to help - can you pay your Council tax over 12 months instead of 10? Are you Gas and Electric always that low or should you average your costs over winter as well? Mobile phones could go to pay as you go which could be cheaper.
Road tax is obviously a typo and needs changing. You need to put something in for clothes and entertainment.
Find out the APRs for all your debts and pay off the one with the highest APR first. I think paying your debts before overpaying your mortgage would help.
You definitely need to keep a spending diary to show where all your money goes. Good luck.

Hannah_10

I love KingfisherBlue's idea with the credit card!

I'm also going to say before you start addressing the ins and outs of your money troubles you need to know what truly does "in" and what truly does "out". I'm doing a spending diary at the moment, I've been doing it nearly 4 weeks, it's absolutly astonishing, I'm seeing certain patterns emerge that I never expected. I recommend you do the same, for at least a month.

MissCellaneous

Sorry guys, I had noticed I put the road tax in annually then pasted in the correction plus the new correct values for the totals etc. but it looks like I actually missed the bit that was wrong in the first place! Also, I have missed out 15.99 for Lovefilm - oops.

You're totally right, we need to look at our spending very carefully to understand what is happening as I don't think we're beyond our means as such - we are going to try a spending diary as many of you have suggested, we have to see where our money is going!

We're overpaying our mortgage because we essentially used to pay a lot in rent until we bought our house, and whilst we could afford it wanted to pay more, thinking that since we're in an entirely flexible no tie-ins mortgage, we could simply stop overpaying or switch if the rates got unfavourable. Is that mental?

Marisco you're so very right about the timings of payments, that really gives us trouble! I'm going to sort those out! Also we go through phases of keeping the CCs at home and taking them out depending on how much we've built up though this month since we've no money left we'll have to use one at least a bit! It's such a rubbish situation to put ourselves in. You're right about cash too, I'm going to try that, I'm often shocked at how all those little debit card payments tot up.

Kingfisherblue, I've thought about that - we use the joint account we have for next to nothing, to actually pay all bills from it is a very good idea. I'm going to have a think and look at that, I'll have a lot of admin to do but it would help! And yes I think we should reduce our cards - we were thinking just one 'decent' rate card to keep hold of, in both of our names so we only ever have one balance - and can 'keep tabs' on it together.

By the way, I recently switched my gas and elec - saved about 20 a month from it based on their estimates, paying by direct debit. I guess I'll find out if it's accurate when I get my bills and give later readings etc, but with my last supplier I found that it worked out ok across the year?

You know what's great? After posting this original post, my partner and I had a long talk about this, better than we've had in ages. We came up with a lot of similar things ourselves, and it was wonderful to talk about money without arguing, I feel like we've made a real breakthrough, and all your answers are so supportive and helpful - I don't feel alone like I did this morning. One other thing we agreed on is that the budget we work off - with the too-low grocery fund, for example, is slightly flawed to start with, so the CC payments I calculate based on that are always going to leave us with less than expected. Plus the entertainment and the clothes budget as you've mentioned - we need to figure that out.

Thank you so much, your help so far has been brilliant!

katsu

We do the joint a/c covers all household payments and it really helps. We transfer into the account more money than the bills take so that the rest builds up in some savings. Whilst we were still in debt we used the excess to make CC repayments. Neither of us used that account for spends, so it really helped.

I also keep groceries out of the joint A/C. I pay them from my current a/c, so I don't eat into the joint spends. Depends what works for you - works for us as I'm our higher earner.

I suggest you pay the £100 off a CC instead of the mortgage for now. Pick one and set up a regular payment to it (once you've worked out your budget) That way you are still used to the higher expenditure and once you are debt free you can switch it back to the mortgage.

Cut up CCs - then you can't use them.

In terms of the gap between you - we also have a noticeable gap between our wages. The trick is to discuss between you how you want to handle it. The only way to split all costs 50-50 is to live a lifestyle that matches the income of the lower earner, not the higher earner. If your partner wants a more extravagant "us" life then he needs to accept he does need to contribute more to the gig tickets etc. Maybe agree some disposeable "random spends" money and keep that in separate personal accounts and use that for solo treats (when it's gone it's gone), and once you have cleared the debts use the joint a/c for "us" savings - say for house redecoration etc. Until then joint "suplus" goes off the debts.

MissCellaneous

Thanks katsu, your advice is sound and the idea about the mortgage overpayment is really good - as my fear is indeed that we'll get used to not paying it!

Also, what you've said about the 50/50 split has really enlightened me, I've certainly been feeling poorer and poorer personally as the money rolls in on the other side - it makes sense!

Really good ideas - thanks so much. I'm already putting steps into action, going to nail this!