I've got myself into a MASSIVE debt in 9 months...

KxMx

How are you getting on with YNAB weebit?

My first month doing a spending diary was very sobering and very illuminating.

weebit

Hi all,

So I have a big update on this thread. After we decided to move out of our house and into a cheaper house, We did a bit of searching around on the internet for the sort of place we'd like. We came to the conclusion that we would not find a place cheap enough to make moving worthwhile. We'd probably only save about £200 a month. Whilst that might sound like a lot to most people, the thought of moving again to save that money didn't seem the effort.

Now I know i've probably rattled a few cages and many of you are now hovering over that "reply" button to condemn me, but wait just one minute, you! Since we're not going to move out, we needed to think of something else to help us out, and so we've decided to bite the bullet and rent out our spare room. We could reasonably charge in the region of £650 to £750 a month including all bills for the room - an amount which would be impossible by moving house (or at least a house we'd be comfortable in!). In the words of my wife "It's a no brainer, really". We'll start advertising the room in the new year.

The money we'd save by doing this will increase my additional payments to credit cards to around £1000 a month, on top of the minimum payments, bringing the total amount to paid each month to apx. £1700-£1800 a month! This is a huge amount and assuming we continue to pay off the debt at this level, we could be debt-free within 3 years! We could also afford to loosen the purse strings a little bit whilst still paying down the debt, albeit at the expense of an extra couple of months of being in debt.

I'm also getting on well with YNAB. I've not gone over budget so far this month. I've gone over on a couple of categories but by shuffling things about, I balance things out. There is still some time left to go this month, but I think things should be ok.

and before I go, i want to address this post:

Larac wrote: »

I just read this thread and personally think you will need to consider a DMP. I had a similar debt of around £50K and found that the CC kept increasing the apr rates until the minimum payments were absorbing all my salary. I was some what dellusional that I could manage to keep going and that eventually I would pay off my debts, which at the rate I was going would have been 25+ years. I took out a DMP, the accounts got frozen and I will have cleared the debts within the next couple of years. Not having access to credit is a blessing in disguise as it definately shapes your spending behavious around 'needs and wants'. It also taught me alot about having to budget - was and still is a harsh lesson. Wish you the best of luck.

I did consider a DMP and an IVA but decided not to go for it for 2 reasons:
1. I was able to meet the minimum repayments so the likelihood of it being accepted was low.
2. My earnings prospects over the next few years means we are looking to buy a house as soon as we're able to. If I had a DMP or an IVA, this would count negatively on my credit report when applying for a mortgage.

I know might seem crazy to be thinking about a mortgage when I'm so heavily in debt, but I'm probably not too far away from doing this. Obviously, before we even consider it, we'd need all of our debt paid off and have built up a substantial deposit, but if we're paying off £1800 a month (and this increases as my wages rise also), Then we could potentially have a 10% deposit within 3 years of being debt free.

To address the point about increasing interest rates, I have had a few cards increase the rate, however I rejected these rises and closed my account, as I am entitled to do. I do have a few other cards still open, however I don't intend to ever spend on these cards again but am keeping them open in the hope they offer us a balance transfer deal. I'm unlikely to be accept for a new credit card within the next 12 months at least, so any deal I get is only going to come from an existing account. However, if they want to increase my interest rate instead, I'll gladly reject it and close the account.

Talking of balance transfers, I currently have £27,449 on special rates (i.e. just under over half my total debt). £11,250 is on limited term 0%, £6,200 on limited-term low rate of 9.9%, and the rest on 6.9% life-of-balance. The rest is at standard rates.

Fletchasketch

Wow, really impressed- what a corner you've turned! Wishing you all the best with your upcoming plans, oh and Happy Christmas!

smartpicture

Sounds good - my only point would be why wait to advertise for a lodger? You can specify no moving in until 1st week of Jan if you want, but people will be looking now. I've just done it myself, so I speak from experience.

Grenage

Can you let a room in a house you're renting?

weebit

Grenage wrote: »

Can you let a room in a house you're renting?

I'm not sure what you mean by this, but if you mean will the landlord allow me to rent it out, the answer is yes, but we'd probably have to sign a new tenancy agreement with all 3 of us on it. I've not spoken to him about this yet, but it's certainly possible - we did used to live with someone until she decided to move out.

and as for why we're not advertising it now, i have my reasons:
1: We've spread out all our stuff across the whole house so we need to move all our stuff out of the spare room, including furniture which will take time. (we need to breakdown a wardrobe to move it to another room - it doesn't fit through the doorway otherwise!)
2: The whole house is a bit of a mess and I'm using my time off over Christmas to tidy it up a bit - again, due to the fact we've spread out over the whole house!
And most importantly 3: We're going away over Christmas so won't even be able to show the house to anyone anyway! (don't worry... we're staying with family in the UK, it's not a holiday!)

Grenage

weebit wrote: »

I'm not sure what you mean by this, but if you mean will the landlord allow me to rent it out, the answer is yes, but we'd probably have to sign a new tenancy agreement with all 3 of us on it. I've not spoken to him about this yet, but it's certainly possible - we did used to live with someone until she decided to move out.

That's ok then; it was worth mentioning as many landlords would not be happy with a subletting arrangement. If it's all three of you simply renting the house as a group (rather than you and yours renting, and you subletting a single room), it's obviously completely normal and acceptable.

asparagus1968

I'm being a bit slow- surely the 3rd persons rent would go to the landlord?

ASutton

You do need to be aware that based on your figures of £650 - £750 pcm it will exceed the £4250 tax free allowance for letting a room. There are changes being introduced for taxation on landlords from 2017, based on your income you will probably remain unaffected but don't be surprised if your rent increases due to these changes.

I do admire your positivity, but think you're completely deluded with your head up your backside, to even think of a mortgage with your current debts. Your debts coupled with inflated property costs, especially in London, means that there is probably more chance of me buying the moon than you buying a property in the next ten years.

IVA as so many before me have mentioned is your best solution but you clearly do not want to listen to this advice, as previously stated.

You have paid off around 3k of debt in 12months but expect to be able to pay an extra £1800 of the debt each month? Really?

Your mentality on the subject is completely ridiculous, you already thinking towards "loosening the purse strings" before you have even started. Spending 11k on a wedding party when you already have a 40k debt underlines your attitude towards this situation. A financially sensible wife would of shown you where to shove that idea!

weebit

ASutton wrote: »

You do need to be aware that based on your figures of £650 - £750 pcm it will exceed the £4250 tax free allowance for letting a room. There are changes being introduced for taxation on landlords from 2017, based on your income you will probably remain unaffected but don't be surprised if your rent increases due to these changes.

I do admire your positivity, but think you're completely deluded with your head up your backside, to even think of a mortgage with your current debts. Your debts coupled with inflated property costs, especially in London, means that there is probably more chance of me buying the moon than you buying a property in the next ten years.

IVA as so many before me have mentioned is your best solution but you clearly do not want to listen to this advice, as previously stated.

You have paid off around 3k of debt in 12months but expect to be able to pay an extra £1800 of the debt each month? Really?

Your mentality on the subject is completely ridiculous, you already thinking towards "loosening the purse strings" before you have even started. Spending 11k on a wedding party when you already have a 40k debt underlines your attitude towards this situation. A financially sensible wife would of shown you where to shove that idea!

This is what I love about this forum, so many positive people!

But seriously... in the past year, true we've not paid much off the debt, but that's because we were still over spending. Since then, both me and my wife are earning more and keeping track of our spending so we can reign in the spending if we're going over.

True, house prices are going to rise, but so are my earnings. My wife probably won't earn much more since she's basically at the top of her ladder, but I have a long way to go to reach the top. Every new job I get I increase by rate and that rate is accepted.

Regarding the tax on rent... not my problem. Although I've used the terminology or renting out the spare room, it's not income to me but to the landlord. In reality, my costs will be decreased because the new housemate will take over responsibility for their portion of the rent and household bills.