Savings or debts? A confessional!

PennypinchingPig

Hi All,

I'm a long term spender, first time money-saving-er so hope I'm posting this where I should be! I'm really just after a bit of advice about where to go next with my finances..

I first borrowed at 18 to buy my first car - one of those nice expensive 30% APR Barclay Loans with my mum as guarantor and got talked into a Barclay Card at the same time to help 'boost my credit rating'. This all co-incided with my moving out of home for the first time and long story short I've been living just a bit beyond my means ever since.

In terms of where I am now I'm a few years older (7 years to be exact) but not much wiser!

At one point I brought a house with an ex-boyfriend and made about £25k profit when we sold it. I put that money in the bank, intending to use it as a deposit on a new property. Sadly that didn't work out (got gazzumped on the first one having already paid several hundred in fees, then found that the second property I offered on had potential subsidence so lost several hundred more.)

I'm now living with my new boyfriend (well -not so new -we've been together 3 years now) in a house that we rent from his family. We decided at the end of 05 that we'd like to buy the house from his family. However, he's had pretty bad credit in the past and still had substantial debts hanging round his neck that he was paying off by arrangement with his creditors.

We decided to try to pay off the majority of his debt using my leftover equity which we did to the tune of £17k. I then took out a Cahoot loan of about £7k to consolidate some of the more expensive borrowings (in my name only due to his credit rating). This left us with about £5k floating around on credit cards. The last £7k of equity I have left in a cash mini-ISA with the intention of this eventually being our deposit and solicitors fees when we brought.

I'm pleased to say that we have just today paid off the last £3000 of the Cahoot loan (which I was paying £400 a months on) using our annual bonuses from our employer, which just now leaves the credit cards to go before we're debt free.. but, and it's a big BUT.. its not all good news.

In the last 18mnths the £5k on cards has grown to £8k on cards - some unavoidable like the boiler exploding and the cars engine doing the same - but equally a fair bit more of the both of us continuing to live a bit beyond our means. That £8k is split between a Barclay Card with a lifetime balance transfer rate of 6.9% (£3700k) and a Halifax MasterCard currently at 0% but about to go back to standard rate of 18.95% in a couple of months (£4300).

I also have a currently empty egg card in my artillery which is about to come up to its anniversary soon so I think I'll be offered 0% for 5 months again.

The final piece of the jigsaw is that in August I also need to pay £3500 for a holiday that we have booked to the Maldives. Just to put this in context and so you don't think I’m completely mad this is for my sisters wedding - I can assure you that I wouldn't be splashing that sort of cash on a holiday otherwise!!

So - and I promise I'll stop waffling and get to the point now... what I need some help on is where to go next?

I'm contemplating cutting my losses and using the money in the ISA to clear the debt, trashing all my cards to remove temptation, then putting the £400 a month I would be paying on debt back into savings, initially for the holiday & then for the house. (Although I'd still have to borrow a bit for the holiday in the short term)

However, as I still have some 0% borrowings, would I be daft to pay them off when I could still be getting some tax free interest on the savings in the ISA? Or should I pay for the holiday on a 0% on purchases card and try to make some money from an incentive (like the M&S card that Martin mentioned in one of his articles.)

I know I've got options, but in a way it's like having too many & I just don't know what to do for the best - HELP!!

Penny Pinching Pig

P.S apologies for the length of the post - I just needed to get all of that off my chest!

LookingAhead

I hope you feel better for getting it all off your chest

Erm well, people will say you can use the 0% interest period to pay off some debt and make the money on savings instead which is of course true.

I have to say though I know without a doubt that if I had money to wipe debts out right now and then start saving again, I would do it.

As long as you know you won't live beyond your means after you've paid the debts off though, that's obviously essential....

Crown

Hi, And welcome to the forums,

I dont know if Ive just missed it but I couldnt see how much you actually have in your ISA account to pay off the debt?

In general its normally a better idea not to have that many savings (just enough for emergencies) and use them to clear your debt as you normally are paying out much moe in interest than what you arte recieving from the savings account

Saying that once you use your ISA savings there is no way to get them back into tax free savings and you then would then have to save again each year up to the £3000 limit.

If you can provide a full statement of affairs as described in the 1st time posters thread at the top of this forum we should be able to offer more advice. If you can rearrange your debt onto the Egg and then snowball the debt with any extra income you may be better of long term to hold onto the savings.

Please post up more details on your Income/Expenditure in the format shown in SOA thread and im sure you will recieve more advice

PennypinchingPig

Hi all,

Thanks for replies so far - SOA attached for me & the boyf - including information about a couple of other debts that he hadn't confessed to previously!!! Oh well - all out in the open now ...


Monthly SOA

In Out
Salary 1 1515
Salary 2 1620
what? amount Whos bill?
Lottery direct debit 18 Joint bills
Cat food 40 Joint bills
Grocery + misc 500 Joint bills
Petrol 30 Joint bills
Rent 600 Joint bills
Council tax 115 Joint bills
NTL 31 Joint bills
Water 30 Joint bills
house insurance 25 Joint bills
tv licence 10 Joint bills
npower (electric) 42 Joint bills
npower (gas) 36 Joint bills
sky digital 50 Joint bills
Life insurance 1 20 his bills
Mobile phone 1 45 his bills
charity donations 10 his bills
whey muscle builder 50 his bills
gym membership 1 30 his bills
driving range 50 his bills
Life insurance 2 10 Her bills
Gym membership 2 30 Her bills
Nieces savings account 20 Her bills
Dermatologist 120 Her bills
Chiropractor 60 Her bills
Mobile phone 2 35 Her bills
Magazine subscription 3 Her bills
Car insurance 25 Joint bills

Debts


description amount interest rate

Cahoot Loan 383 14.90%
Halifax card 4414 0%
Barclay Card 3474 6.70%
Barclaycard 100 14.90%
Solution Finance 3035 19.90%
Total 11406


Savings
description amount interest rate
ISA 7150 5.35%


any advice much appreciated!!

PennypinchingPig

Sorry gang - format has gone a bit haywire in translation.. will see if I can make it more readable!

helping_hubby

Are you living within your means now? I can't be bothered to add up all your outgoings, sorry.

In all of Martins articles I've read he always says to pay off the debts and not to have the savings. Having £7k in an ISA is not helping the £3k at 19.9%.

I would start at least by paying off all the cards that are charging interest.

However, if I didn't misread, then you are not married?

Who's is the savings? Joint? Or yours?

sammy115

Is the Solution Finance a loan over a fixed period of time? Are there any benefits to paying this loan off early? And i am sorry I don't wish to pry but I guess the couple of other debts you didn't know about are the cahoot loan and the solution finance debts - are they in your boyfriends name?

I am sure you must have given some thought as to the implications of paying off a lot of your boyfriends debts with your money. Has he really got the idea of moneysaving and DFW?

sammy115

Just gone back to your SOA. I would cancel the direct debit to the lottery for a start. Do you know the chances of you winning the lottery are pretty slim! Your food bill and misc needs to be split into what is food and what is misc. This is where your overspending is creeping in. £500 for two people is quite astronomical.

I won't say anything about the whey muscle builder! A lot of your SOA items depend on how fast/serious you are about paying off your debts and saving for a house. You are not going to get there by spending money on gyms, sky, driving range etc.

hypno06

Hi there, as mentioned above (I think!), you have to decide as a couple just how seriously you want to clear the debt and to buy a house. It seems to me that if your bf had debt problems in the past, and has only just revealed to you another couple of hidden debts, that he has to have his lightbulb moment and to commit big time to your future.

If that is the case, and you are both ready to steam forward then you have plenty of scope to pay off a chunk of debt using the isa, and then with some streamlining of your SOA (gym, dermatology, whey products, sky etc) you could very quickly wipe out the rest of the debt and start putting a good amount away each month towards the holiday and the house deposit. Plus, of course at the same time, you are both learning the good habits that will mean you can buy this house and not get into financial difficulty in the future, putting the house at risk.

If he is not totally on side, then I would question whether you should use your savings to pay his debt, especially if he is likely to take out further credit in the future.

Good luck x

Mindy_2

I've just done a quick tot up of your incomings and outgoings.

Your income is £3135 and your outgoings £1975, that leaves £1,160 to service your cards and loans.

There is no point in having the ISA at 5.3% if you are servicing debts at higher interest rates, if you were to use this money to pay off both the Barclay Card and Barclaycard (are these different cards) that would use £3,574 of this money.

Can you repay the other two loans early, is there a penalty if you do?

Assuming you can pay them off early, then do so, leave the Halifax card as it is 0% and you will still have £158 left in your ISA!

I agree with Crown about the ISA, but as someone who has just cashed hers in, then I would get the money out and sort out the debts.

Based on the above figures for income and outgoings you still have the £1,160 a month extra to continue to pay off the Halifax Card and tuck some money away for savings.

You could save more if you were to reduce your outgoings - for instance your groceries, lottery, muscle builder, driving range etc, but that is a choice only you could make.

However, it is very easy to get into the frame of mind where you think you have done so well with your debts that you can treat yourself a bit, because as a bit becomes more you lose sight of what you were aiming for in the first place - for you to buy the house.

Good luck and let us know what you decide to do.

pippo

Hi PPP, You've had some good advice already, but I'm a little concerned that that if you cash in your ISA you are not leaving yourself a personal safety net if you and BF should ever split up. Sorry to spread gloom, but it does happen.