Debt Free in 4 Months - Then What?

ThreeMarks

After a long decade in education and some trekking about the country to work, I managed to rack up a bit of debt. I never took out a mortgage due to the nomadic lifestyle, but I did mange to garner some credit card bills. I always managed to repay these, albeit few a late payments due to changes of bank accounts, but nothing serious.

Unfortunately, a few years ago, I was made redundant and unable to work full-time due to mental health issues. I became self-employed and was therefore on a low income for some time. Because of the low income, I was unable to repay debts by even the minimum amounts. Thus, I contacted StepChange and voluntarily set up a DMP to repay the £4500 credit and store-card debt.

This lasted for about a year, until I was fit enough to undertake full time employment again. A few months ago, I cancelled the DMP and contacted my creditors to offer to pay them a decent some a month. I had 5 creditors in total - 2 large(ish) credit cards and a couple of hundred each on 3 store cards. I have since paid off 2 of the store cards and scraped some off the third. I have also shaved about a £1000 each from the credit cards.

This means that, in approximately 3 months time (March) and, God willing, I will be debt free. I am now half-sighing with relief. I will allow myself the full sigh once all my debts are clear. :T

At this moment in time, I am living with my parents. They kindly refuse to accept any rent, for whatever reason. But yes, I agree it's very kind of them. I do, however, pay for my own food and cook this myself. Again, they don't take money for this (they are quite wealthy) and I try to stick to cooking with the microwave. And yes - it is fresh food - I cook soups, curries, stews, etc. all from fresh ingredients, in the microwave. Although, I do occasionally treat myself to a shop-bought curry.

So, it seems that, soon my debts will be a thing of the past. My question is - where do I go from here?

I've got myself a little plan together, but I hoped others could help me get my finances on track, on not slip back into the debt trap.

Three months after my debt free date (June), I intend to have £2000 in my savings account. £500 in a cash ISA, have stuffed £2000 into my private pension fund (of which approximately, £1500 will come from regular payments that I have just set up), and £750 for new furniture, and ~£1000 for a months rent and a deposit on a flat/house.

It feels so good, I can't tell you enough. Apologies for a lengthy post, and no real question, haha. Really, the intention of this post was to have it plonked on my Facebook timeline, so I can recall this feeling in months and years to come.

hettiecarro

Welcome.
It's good to know that you are heading for your 'debt free' day, and I sincerely hope you make it.
You are very wise to think about how you will handle your finances after you have reached it.
If you are saving for a deposit on a place of your own I would strongly advise that you do all your maths to make sure you can live within your budget.
You have been lucky to have supportive parents - but you obviously want to move on from where you were - and that can be costly as you are I'm sure aware.
I have suffered from mental health problems myself and know how hard it is to cope with everything whilst going through an 'episode'. Keep this in mind and try to build a safety net.
You don't say what your income is, and obviously you don't know your expenditure when you move.
I would also start to put aside an emergency fund BEFORE moving - (sometimes unexpected expense can derail us). Personally I would do that before setting up my isa's etc.
I wish you all the best - and in the nicest possible sense - I hope you don't have to come back here for debt advice in the future
Use the rest of this site as ,much as you can to stay on track, and give yourself a big pat on the back from me when you reach that debt free date.

ThreeMarks

Thank you hettiecarro, for your kind words of encouragement.

My salary is £28.5K a year or £29.5K if I include bonuses. I also have a small income from my self-employment - about £2000 a year currently - not a big chunk, but something to use to stuff my pension at the end of the year, and this is passive (and legal ). I'm a software developer and make Android games in my spare time.

I have also planned my budget for the big move. I've found a affordable rents near to my parents' house (so I can come back for my Sunday roast). I budgeted for up to £600 a month in rent. This is completely affordable based on my salary, and well within the recommended limit which I checked on various letting agents' websites.

I have also been checking out council tax rates etc. I've included everything in my budget - rent, utilities, pension contributions, savings, car maintenance, phone and internet, a (small) mobile budget, food, nights out, petrol, transport, holidays, entertainment, gym membership, clothing, video games, books, magazine subscriptions. I've planned it down to the finest details.

I'm well aware of all the costs as I have lived alone for a decade or so, both as a student as well as moving away. I only returned due to redundancy and I suppose, convenience.

Just one thing, I noted that you mention I should save for emergency. Yes, I definitely intended to do this, and the £2000 was meant to cover this. And the £500 cash ISA was intended to be after this. Also, I would be saving money in to the savings account after the move too - yes i have budgeted for this too.

So the first question I have about my future savings is - how much should an emergency fund be? I looked at a few sites for help and many recommended 2 - 3 months expenditure. I would say that £1000 a month expenditure is necessary for myself. Hence the figure of £2000.

Weird_Nev

hettiecarro wrote: »

I would also start to put aside an emergency fund BEFORE moving - (sometimes unexpected expense can derail us). Personally I would do that before setting up my isa's etc.

THis. Save 3 months projected living costs (including rent, deposit, and full utilities and transports) in case "the worst" should happen. For whatever reason, you have to move out, sort your life out alone, and find another job with no income.


However, I think this money should be held in a Cash ISA, since it is immediately accessible in almost all cases, and protected against the erosive effects of tax and inflation with a small but important APR return on it.

ThreeMarks

I'd like to request that a Moderator punt this to the Debt Free Diary section. I'd like to start this post as a diary, but don't want to have to start a new thread.

Thanking you kindly.