What do to debt?

longsightrob

Morning all,

I'd like some advice as I’m a little unsure at the best way to move forward.
I've got a below average credit rating and my finance has got an average credit rating however that didn’t stop us getting a good deal on a mortgage in January (fixed for 5 years at 5%). She works part time and I’m in full time employment and we have around £3000 coming in a month after TAX which leaves around £200 to save a month, however my question is I have £3700 worth of debt (3000 on CC at 19% and a £700 overdraft) and the OH has around £19k split between car loan, student loan and CC's and overdrafts, so is it better to remortgage and push the debt onto the house or pay it off bit by bit?

Thanks in advance

HappyMJ

You have only just secured a 5 year fixed rate on the mortgage 5 months ago in Jan so rolling up unsecured debt now onto the mortgage is not a good idea.

You really want to be looking at low rate balance transfer credit cards and stop accruing debt.

If you did remortgage so soon you would have high penalties to pay which would make it cost so much more than paying it off at a higher interest rate.

Car loan generally are a a good debt. They are usually at a low rate and if needed the car can be sold to repay the debt.

Student loans are also usually a good debt. They are usually also at a low interest rate.

CC's are supposed to be very short term debts and need to be paid off ASAP so cut your expenses and put every penny you can towards these debts. Same with the ovedraft.

You have £3,000 coming in and only have £200 a month spare. I'm sure there is some scope to reduce your expenses to be able to attack the CC's.

tell_it_how_it_is

Agree with above re: £3k and £200. I'd personally suggest initially taking a look at your monthly expenditure, and cutting down where possible i.e. can a £35 phone contract be halved, do you need full expensive TV and broadband etc.

Seeing if you can balance transferring credit cards to a 0% deal is a good idea, otherwise rip perhaps all but one credit card off, and chuck that little bit extra you've saved towards paying them (and the other debts) off, weighted towards the ones with the highest interest rate first (search for snowballing debt).

This sort of situation often creeps up on you from living beyond your means, and the boring answer is simply to take stock and cut out wherever possible some of the things you're chucking money away on.

Bufger

Alot of the time Car finance has the interest added on at the start so paying it off early wont make a difference. Have a look at what kind of debt it is before attacking it and list your debts by order of interest rate and amount.

Highest interest rates first. It'll be something like:

Credit Cards
Car Finance
Mortgage
Student loan

You'll want to attack the CC's first. If your car finance has the rate added to the total amount from the start then it wont get any better or worse over time as long as you make your payments so dont attack that next. By the time your fixed rate comes to an end you will want to have cleared all of your other debt and I think its completely achieveable. As soon as you pay one off you use the extra cashflow to pay into the next, this compounds

chalkie99

That "spare" £200 a month can disappear in the blink of an eye with inflation and unexpected household bills, let alone any changes in your job situations.

The usual advice is not to turn unsecured debt into secured debt so your best bet is to follow advice above

- target the credit on which you are paying the highest interest

- concentrate on the overdrafts because these are loans which can be called in at any time without notice -

- go over to the Debt Free Wanabe section and read up on how to complete an SOA (Statement of Affairs) so you can see exactly where your money is going. then get rid of the things you don't actually need and live on beans until you are in a more comfortable position.

longsightrob

Guy's thanks for the feedback, its really
appreciated. I agree that with that amount coming in we should have more available to stick into paying off the CC's etc however I think I have cut most corners, time for another look me thinks.
With that in mind is there any benefit in bringing both wages into the joint account and shifting all the bills payments into that one account?

tell_it_how_it_is

What we have done in the past is have our own accounts which our own salaries go into, and then a third account into which we both deposit a certain amount once we've been paid, from which the bills are taken.

It then meant that the (regular) bills were taken of automatically, and what was left in our accounts for the rest of the month was ours to freely spend, either jointly or independently, with unexpected bills dealt with as and when they arrived.

It worked for us for a while, and something similar might be useful for you to help with the discipline, but sometimes it is just trial and error to just see what you end up most comfortable with.

We don't do this anymore for example, I now pay all the big bills out of mine, and the missus the smaller ones out of hers (proportional to earnings ).

Bufger

longsightrob wrote: »

Guy's thanks for the feedback, its really
appreciated. I agree that with that amount coming in we should have more available to stick into paying off the CC's etc however I think I have cut most corners, time for another look me thinks.
With that in mind is there any benefit in bringing both wages into the joint account and shifting all the bills payments into that one account?

The setup me and my wife have is as follows:

My wages into my account
Her wages into her account
I pay a % of my wages into joint account
She pays the same % of her wages into joint account
All utilities and food shopping etc come out of joint account
Personal mobiles and fuel comes out of seperate accounts

This leaves you each with a percentage of your own money to use as you wish and it gives you both responsibility with money. Otherwise you may have one using up more than they should be.

This also benefits us because our joint account gives us a good interest rate AND cashback if we deposit over X amount every month which we always achieve.

Apples2

Bufger's suggestion is a good one, but one of you need to actively manage that account.
It is easy to both throw money into it without really controlling it.
The risk is an unnecessary bounced DD if it drops too low.

Sounds a simple enough concept, but not everyone (couples) find it so simple (ignore it whilst assuming other half is looking after it)

If I ever tried something like that I would probably build up a float in it of about £500 before taking the plunge. Use the £500 as the £0 point and go from there throwing money in by SO.

longsightrob

Thanks all.

KingElvis

Apples2 wrote: »

Bufger's suggestion is a good one, but one of you need to actively manage that account.
It is easy to both throw money into it without really controlling it.
The risk is an unnecessary bounced DD if it drops too low.

Sounds a simple enough concept, but not everyone (couples) find it so simple (ignore it whilst assuming other half is looking after it)

If I ever tried something like that I would probably build up a float in it of about £500 before taking the plunge. Use the £500 as the £0 point and go from there throwing money in by SO.

One of our "friends" run this method, however, as the guy is a complete financial menace, it never works for them. He draws out money for tat he doesn't need and they're always arguing.

We have a Salary account, a Bills account and each of us has a pocket money account. My wife is a modern day Scrooge so know where every penny goes, when every bills is due and stays on it like a tramp on a kipper.