paying off debts v savings

pinkypoopydoo

Since I split with my husband, I have managed, for various reasons, to accrue a fair amount of debt (approx £10,000 + £3000 overdrafts inherited from marriage. And the mortgage) and really need to get a grip. I am in a position where I live from month to month, and if something happens (for example, if the car was to break down) I'm goosed. I then spend a month or two eating nothing but porridge and value noodles, to try and save enough to fix whatever needs sorted. A friend suggested that I look at an IVA or trust deed (I think they are the same thing?), but I need to be in a position to remortgage and get my ex off the current mortgage at some point in the next 5 years, so this rules out anything like an IVA. And I was always taught to face up to your own mistakes, and unfortunately this debt in a big mistake of my own making.

I currently pay off minimum payments (or just over, normally rounded up to the nearest £10) on 3 catalogues and one visa bill, while as much as I can onto my horrible Vanquis card, with it's huge %age rate. This however, means that sometimes I have to then use the catalogue or other visa for essentials (sometimes food, clothes for the children), so I am making little headway on anything other than the vanquis card.

I applied for a loan a few months back, with a local credit union, but was turned down as I didn't have 6 months savings record with them.

So, am I better paying off less to Vanquis, leaving me with more financial leeway each month, or just suck it up and accept that this problem is a long term one, and continue the way I'm doing it?

(apologies for the essay...!)

Trajal

Making the assumption that the interest rates are from highest to lowest - vanquis, cat1, cat2, cat3, OD, loan... I'd try to set yourself a more realistic budget.

Truthfully, if you're having to dip into your vanquis card to buy food then you're paying them too much.

Make a more realistic budget and stick to it. I would also put your vanquis card on ice - literally - stick it in a plastic mug of water and put it in the freezer. It'll be there if you desperately need it but you won't be tempted for anything other than an absolute emergency.

Put aside (not the same as saving really) what is needed for food and clothing separately. It will hurt slightly more, but you really simply must not be tempted to keep tapping at the vanquis card.

Once that is paid off, do the same again with the catalogues one by one. The theory is that if you've budgeted and set aside enough for clothes and food without dipping into the credit facilities you will eventually pay them all off.

Once the catalogues are gone, well that is when you start to work on the overdrafts. Personally I would suggest using a different bank and icing the card with the overdraft facility entirely, you may already be doing this because of the specific marital circumstances but if not then I strongly recommend that you do. This allows you to pay the overdraft off as if it were a loan without dipping into it on your day to day shopping.

Again, it's all about realistic budgetting, you have to make sure that you are counting everything you need as well as eventually setting aside a small amount each month for a general contingency fund.

Took me less time than I thought to get through about the same amount of debt so you may be surprised. You're not in the best situation but you're far from in the worst, so hang in there. Every low spend minute counts - do your best to resist using credit until you have got this all paid off.

mildredalien

I agree with Trajal, if you have to turn to cards to get through each month then something in your budget isn't adding up. Either you are underestimating the amount you need to spend each month, or you are overspending - have you done a spending diary recently to work out what's going on with your money? If you haven't already, I'd recommend filling out an SOA (statement of affairs) and really getting to grips with your finances.

In terms of debts vs savings the advice is almost always to pay off debts first, highest interest to lowest (although a small emergency fund is usually a good idea!)

Good luck

pinkypoopydoo

I filled out a SOA earlier, and that pretty much agrees with my own spread sheets. While I don;t record everything I spend, at the moment, I DO carefully and religiously keep track of all DDs and payments due, and have never (*touches wood*) incurred any penalties or late fees due to missed payments since I split with my ex. I have very carefully, since my split, worked very hard at repairing the damage done to my credit rating during my marriage, so I now have an excellent rating, I just don;t have the income to have much credit choices, hence the high interest charges I now incur.

I guess, as has been said, the trick just now is to forget paying off the overdrafts and anything other than minimumish payments on everything but Vanquis, and possibly even drop the amounts I'm paying on Vanquis. At the moment, I do not budget for anything like clothes or any entertainment other than a basic sky subscription and a lovefilm subscription. This is possibly a mistake, as when the greatest excitement you have to look forward to is the next episode of Eastenders or the next rental from lovefilm arriving, the prospect of a "treat" on tick becomes much more appealing.

I will also apply to the credit union again as soon as I have 6 months savings with them, and hopefully consolidate the lot into something with a more appealing interest rate. Or sell a child.....

Trajal

Hi Pinky.

I have to say that when I was in my 'get out of debt' phase, I dropped everything that wasn't essential at first. That included Sky (well virgin in my case). I cut off the phone, broadband and tv, then got a super cheap broadband/phone package and used freeview tv for 15 months.

Would also suggest losing lovefilm. Hate to say it but you have different priorities right now, and that £10 a month (or whatever it is) will add up over the course of a year or more to be an amount which becomes important.

Making these tiny changes becomes key. A tenner here or there will start to add up and over the course of a year end up making a lot of difference in the grand scheme of things.

Be brave, cut hard and deep. It's not forever and as soon as that first big bill drops out of your life you will find that a weight lifts off your shoulders. By the time you are debt free you will be feeling completely lifted up and realise just how much money you have available.

Little luxuries are fine, no one can expect to live like a month forever (well maybe a monk!) but I would suggest films and the like be restricted to the free trials of things and when all else fails, borrowing dvds from friends!

My wife and I allowed only a very small amount for luxuries - she would have a bar of chocolate a week and I would buy a bottle of (cheap!) wine once a month. That was about it - we read a lot of books and watched a lot of terrestrial television, but it was worth it.