How much can I borrow

adam--j_2 · 7 April 2011 at 9:52PM

ManicMum wrote: »

Have those other flats sold though? and for what?

Isn't child benefit due to go if you are higher rate tax payer?

Re. the schools - it's the address you are at when you apply that counts not the one you are at the day before school starts.

House prices - I doubt they will slowly rise or rise at all but that's just my opinion so wouldn't bank on that.

Not trying to be obtuse here but how the heck do people incur debts on such salaries? I just don't get it. Our income is a fraction of yours yet we don't owe a bean other than small mortgage.

As others have said I would sit tight and do nothing other than save. And well done for being able to live with your parents!! That is an achievement and one I could not contemplate. :A

I didn't think child benefit was going - I hope it isn't. :-/

Re the schools - we are applying later this year for the following year. Different schools have different dates, so we're aiming to move somewhere from September (ish) to be in and settled on time to apply from that address.

I don't think anyone knows for sure what's happening with house prices and nothing would surprise me. The road has 85 flats and there are always about two or three on the market, but they come and go. Looking at the sold house prices for the area, one went on 4th January for £230k, another in October last year for £200k (I know that one was bought by an investor though and sold by a woman who was desparate to move). Before that, one went in September for £230k, and before that - two in July - one for £227.5k and another for £215k. As I said earlier, I think expecting to sell for £215k is a pretty safe / fair price. We bought for £197.5k in late 2005.

Anyway, you asked how we incurred such debt. This is a long story but I'm happy to tell you. It was partly from my own naivity really. I got my first credit card when I went to university in 1997 and had a limit of £350. I didn't use it at all and then one day I bought something with it as I had a bit of a cash flow issue. I had every intention of paying it off in full, but when the bill came in only asking for a minimum payment of £5, I thought twice. I decided that I could easily afford £5 per month and I just bought some more stuff. The minimum payment rose to £15 per month, but I thought it was all fine and the total I borrowed didn't matter because I could afford the repayments without any problem. Anyway, It turned out that another bank was offering students £50 if they took out a bank account and credit card with them, so - being a student - I applied and got it. Now I had the first card, almost at its £350 limit and a new one with a £500 limit. A similar thing happened with this second card. So, I used both the cards and bounced them, withdrawing cash with one to pay off the other and vice versa. That way, I didn't have to pay anything each month - great in the short term. Obviously, the total debt kept rising by doing this and it was only when I got myself a summer job and starting trying to reduce it that I realised how hard it was to reduce. I should have stopped then, worked harder, and saved. But I always thought that as long as it wasn't going up, that was ok because eventually inflation and a proper salary after graduation would make the debts less significant.

So, I graduated and got a starting salary of £19250, which was an enormous amount for me. I got carried away and saved very little but I was paying more than the minimum on my cards and could see no reason to pay any more. The credit card companies suddenly increased my limits significantly and before I knew it, I had £5k limit on one card and £2500 on the other. I had friends from school who were doing somewhat better financially than I was and I continued to use the card to keep up with them - clothes, drinks, holidays, etc. It was silly. I accrued a few thousand in debt. Then I got into a serious relationship and the impressing switched from my friends to my wife-to-be. Debts went up. I then got a new job paying £32k (I'd had a couple of payrises before that, so it wasn't such a huge jump). I thought it was fantastic and we got engaged and then married. We continued to holiday and our debts were going down, but we were living above our means, spending money we received from the wedding and savings to live off. When that went, we realised that we simply could not afford the lifestyle we had. So we cut right back and things went really well. Then we started having children and they weren't cheap. So I got another job. This one paid £45k. It has been a bit of a cycle. Because I earned more, I thought we could up our standard of living again, but we should have just paid off the debts. The debts peaked at about £30k and we realised enough was enough. We used my bonusses to pay off chunks of debts and paid off more than the minimum each month. It was all going so well until this December, I lost my job. I received a fair size redundancy payout and we decided to effectively salary ourselves the same salary I was on while I spent time looking for work. We went through all of that money (but continued to pay off a small amount of debt). I then got my current job at £54.5k. This month, I only received a half month salary as I'd only been there two weeks (fair enough) but paid off £800 of debt since the first post and also paid off the remaining nursery fees - they had been good enough to freeze the fees while I was out of work.

So, that's how you get into debt and how it doesn't seem to matter if your salary continues to rise. The sort of job I'm in, my salary is likely to rise further still. I know things can happen and I can lose my job, but I've demonstrated time and time again that I'm able to find work and over the last ten and a half years, my salary has risen well. I'm well qualified and have some fantastic experience. I'm also lucky enough to interview very well (I see it as luck anyway). I'm very driven by my salary and historically, if I've not earned what I've needed to earn, I've changed jobs. I would like to stay in my current job as (although it is still early days) it is fantastic and a great firm. The plan is that when the kids are all at school, the wife can go back to work and I can relax a little.

But it does matter. It matters when you apply for a mortgage on a single salary when the mortgage market has tightened up and it matters when the unexpected happens. It matters when you have children and they really want things and it matters when you realise that you are having to borrow just to service other debts. I got into debt through my own stupidity. The banks weren't exactly helpful and were only too happy to increase my debts, but it wasn't their faults and anyone who is in debt and tries to blame them is more naive than I am.

Living with the parents has had its ups and downs and it has been hardest for my wife as she's at home with the kids while I'm out at work. But, it is (relatively) short term and we do get on with my parents. We just need our own space every so often. I had to swallow a lot of pride and own up to myself that I could not afford our lifestyle before moving in with them but that was a big step I took towards clearing my debts.

With our new plan, we'll clear £10k off our debts by the end of August, cutting them down to £11k - probably less than that because the interest will be getting less at the same time as we're paying off capital. That (I hope) will be a lot more affordable and we'll be able to afford to rent a property where I will actually budget properly for the first time ever. We'll keep the flat until we have our daughter in a school we are happy with and then, because I would have been budgeting properly for six months or so, I'll have a much better idea of what monthly repayments we can afford. With a bit of luck, I'll receive a small pay rise in September as well and with a lot of luck, flat prices will rocket and house prices will collapse and we'll live happily ever after ;-)