First Post! How best to pay off my debt?

dirkio78

Hi all, I have made too many financial decisions (or lack of) without making use of this great community. First of all let me lay out my current financial state of affairs. I should say that on top of this I have some work related share saving schemes with £2k saved but I know its future profit is too good to release now as cash. Also my OT income can increase by up to £500 some months as shown in brackets. Finally I do get an annual bonus of around £3k (variable) after tax.

My salary - £2,700 (often up to £3000 with O/T)
Partners salary - £1400
child benefit - £80


Total - £4,180

Monthly Outgoings:

Mortgage/Rent - £640 (interest only)
Council Tax - £160
Gas - £55
Electric - £68
water - £31
TV Licence - £12
home insurance £56
Sky/phone/internet £60
partner Life Insurance £45
pet insurance £30
mobiles £80
boiler cover plan £17
Dental plan £24
Car Insurance - £49
car tax £15
car loan £212
car service plan £14
Gym £12
food -£450
Petrol - £150
Haircuts - £50

sub total: £2230

Loans and credit cards
Creation loan - Balance £169 . 1 month left of 24 months
Tesco loan - Balance £3000. 10 months left at £300
Santander loan - Balance £9120. 24 months left at £380
HSBC credit card - Balance £5500 (at limit). £136 per month (mostly interest)
Creation credit card - Balance £6400 (at limit). £165 per month (mostly interest)
Santander credit card - Balance £3300 (at limit). £40 per month

Total payments per month on credit and loan debt £1190

Total outgoings = £3420

Here is how I see things, the Creation loan ends this month and I will have paid it off successfully (2 years total £4000) thus I may be in a position to use Creation again to better restructure my credit card debt.

Month to month I can afford my current outgoings although it is a stretch. In February 2016 the Tesco loan ends and gives me an extra £300 breathing room which will be quite a relief. Also next year my work share saving schemes will mature and give me a cash bonus. So the cash flow is bad now but improving in next year.

I also have a desire to look at moving to a capital repayment mortgage from next year after the tesco loan ends as Im 37 and have only about 10% equity (£153k remaining).

Here is my plan that I would like some comments on. I was thinking of firstly approaching creation for a loan of £15k for 4 years to pay off all the credit card debt. Although I have no certain APR and quotes I estimate the total monthly cost of a new loan to be similar to the monthly cost of £340 per month to service the credit cards. Therefore I know this is affordable for me. In two years time my Santander loan will end at £400 per month and I would be halfway through the repayment of the new £15k loan. At this point also all other loans would have ended leaving me with around £8k total debt (excl mortgage). I would then be very close to debt free (again excl mortgage) as my ability to get this down via one shorter loan refinance should be easily achievable.

So my plan seems watertight to me :cool: but Im worried about a few things:

a) My overall unsecured debt (some is my partners) is high. would lenders see adding an extra £15k as too much even if I was clearing and closing cards?

b) If I approach Creation as my loan is ending with them this month and who I have £6400 credit card debt with, do you think they would entertain the £15k debt if they themselves were using part of it to totally clear and close the Creation card. I do still want to keep one card usable but locked away due to the need for occasional work related travel bookings.

c) As we are maxed out on three credit cards (yes i do feel very bad about that!) and savings are locked up we have no money for a rainy day. So could do with a plan about that. Credit cards were that fallback but not in this current state.

Comments on the above very welcome or alternative suggestions. I am keen on not touching the Santander and Tesco loans as the end of them will boost my spendable income.

tealady

Hi
I would not get any more credit as if anything happens you will possibly be up s**t crek without a paddle.
You say you have savings for a rainy day, well I think there could be dark clouds on the horizon, you are paying more than a third of your income to service debts.
Time to get the brolly out and reduce those debts. Use a snowballer to see which to tackle 1st, look on the Old Style thread to see where you can make savings (the lovely peeps on there could out Scrooge anyone, mainly from necessity), and look at reducing/cutting back on Sky and mobiles, they are a luxury not a necessity.
Sorry to sound harsh but every time you apply for credit there is a marker on your file and you may find good deals harder and harder to find.
You also say you have no APR for a Creation loan, that would worry me TBH, until you have that figure your calculations could be way out.
Oh and regarding bonuses, I used to know someone who regularly got good share related bonuses, and relied on them to pay off debts. Guess what, the company had a bad year and the bonus was decimated, result more debt.

katsu

Hi. You say you can afford things but it's a stretch. Your SOA leaves around £700 a month unaccounted for. I'd find that first and check out if you are underestimating your spending.

katsu

dirkio78 wrote: »

Hi all, I have made too many financial decisions (or lack of) without making use of this great community. First of all let me lay out my current financial state of affairs. I should say that on top of this I have some work related share saving schemes with £2k saved but I know its future profit is too good to release now as cash. Also my OT income can increase by up to £500 some months as shown in brackets. Finally I do get an annual bonus of around £3k (variable) after tax.

My salary - £2,700 (often up to £3000 with O/T)
Partners salary - £1400
child benefit - £80


Total - £4,180

Monthly Outgoings:

Mortgage/Rent - £640 (interest only)
Council Tax - £160
Gas - £55
Electric - £68
water - £31
TV Licence - £12
home insurance £56
Sky/phone/internet £60
partner Life Insurance £45 - they work so don't they get this at work? Check you need it.
pet insurance £30
mobiles £80 - can you go sim only and cut some spend here?
boiler cover plan £17 - can you get a better deal on this?
Dental plan £24 - assume you use this.
Car Insurance - £49
car tax £15
car loan £212 - how much longer to pay and then do you own the car or have an extra payment to make?
car service plan £14
Gym £12 - seems a good price
food -£450 - can you meal plan and reduce spend? Try old style forum
Petrol - £150
Haircuts - £50

sub total: £2230 - what about birthdays, Christmas, socialising etc?

Loans and credit cards
Creation loan - Balance £169 . 1 month left of 24 months
Tesco loan - Balance £3000. 10 months left at £300
Santander loan - Balance £9120. 24 months left at £380
HSBC credit card - Balance £5500 (at limit). £136 per month (mostly interest)
Creation credit card - Balance £6400 (at limit). £165 per month (mostly interest)
Santander credit card - Balance £3300 (at limit). £40 per month

Total payments per month on credit and loan debt £1190

Total outgoings = £3420

Here is how I see things, the Creation loan ends this month and I will have paid it off successfully (2 years total £4000) thus I may be in a position to use Creation again to better restructure my credit card debt.

Month to month I can afford my current outgoings although it is a stretch. In February 2016 the Tesco loan ends and gives me an extra £300 breathing room which will be quite a relief. Also next year my work share saving schemes will mature and give me a cash bonus. So the cash flow is bad now but improving in next year.

I also have a desire to look at moving to a capital repayment mortgage from next year after the tesco loan ends as Im 37 and have only about 10% equity (£153k remaining).

Here is my plan that I would like some comments on. I was thinking of firstly approaching creation for a loan of £15k for 4 years to pay off all the credit card debt. Although I have no certain APR and quotes I estimate the total monthly cost of a new loan to be similar to the monthly cost of £340 per month to service the credit cards. Therefore I know this is affordable for me. In two years time my Santander loan will end at £400 per month and I would be halfway through the repayment of the new £15k loan. At this point also all other loans would have ended leaving me with around £8k total debt (excl mortgage). I would then be very close to debt free (again excl mortgage) as my ability to get this down via one shorter loan refinance should be easily achievable.

So my plan seems watertight to me :cool: but Im worried about a few things:

a) My overall unsecured debt (some is my partners) is high. would lenders see adding an extra £15k as too much even if I was clearing and closing cards?

b) If I approach Creation as my loan is ending with them this month and who I have £6400 credit card debt with, do you think they would entertain the £15k debt if they themselves were using part of it to totally clear and close the Creation card. I do still want to keep one card usable but locked away due to the need for occasional work related travel bookings.

c) As we are maxed out on three credit cards (yes i do feel very bad about that!) and savings are locked up we have no money for a rainy day. So could do with a plan about that. Credit cards were that fallback but not in this current state.

Comments on the above very welcome or alternative suggestions. I am keen on not touching the Santander and Tesco loans as the end of them will boost my spendable income.

Hope the ideas are some help. If you could make some savings and find the other 700 you would be able to massively increase your debt repayments.

japmis

From what everyone says here, consolidation loans are a bad idea: paying debt with more debt

Are you able to move your credit cards to 0% APR?

Take a look at the YNAB software (link in my signature) which will help you account for every single penny. I've freed up £1,000 a month with their methodology

MoneyMission2015

dirkio78 wrote: »

My salary - £2,700 (often up to £3000 with O/T)
Partners salary - £1400
child benefit - £80


Total - £4,180

Monthly Outgoings:

Mortgage/Rent - £640 (interest only)
Council Tax - £160
Gas - £55 THIS IS HIGH
Electric - £68 THIS IS HIGH ALSO
water - £31
TV Licence - £12
home insurance £56 THIS IS HIGH, HAVE YOU DONE PRICE COMPARISONS. WE LIVE IN A 4 BED DETACHED & ONLY PAY £18 PER MONTH, WITH HIGH CONTENTS COVER TOO
Sky/phone/internet £60
partner Life Insurance £45 WHY IS THIS SO HIGH? HAVE YOU SHOPPED AROUND
pet insurance £30
mobiles £80
boiler cover plan £17 DO YOU NEED THIS? WOULD YOU BE BETTER OFF PUTTING THIS IN AN EMERGENCY FUND?
Dental plan £24
Car Insurance - £49
car tax £15
car loan £212
car service plan £14
Gym £12
food -£450 THIS COULD BE CUT DOWN TO AROUND £350 OR EVEN LESS DEPENDING HOW FRUGAL YOU WANT TO BE
Petrol - £150
Haircuts - £50 THIS SEEMS HIGH FOR EVERY MONTH, £600 PER YEAR JUST ON HAIRCUTS

sub total: £2230

Loans and credit cards
Creation loan - Balance £169 . 1 month left of 24 months
Tesco loan - Balance £3000. 10 months left at £300
Santander loan - Balance £9120. 24 months left at £380
HSBC credit card - Balance £5500 (at limit). £136 per month (mostly interest)
Creation credit card - Balance £6400 (at limit). £165 per month (mostly interest)
Santander credit card - Balance £3300 (at limit). £40 per month

Total payments per month on credit and loan debt £1190

Total outgoings = £3420

.

I made some notes above just on a few things I picked up on. You could do with keeping a spending diary to see where you are spending money day to day. Also if your income is variable because of overtime you need to set a budget based on your basic salary & treat any overtime as a bonus, then use it to pay off debts.


As another poster suggested, do a 30 day free trial of You Need a Budget. It really helps and after my free trial had ended I bought it because although it cost me £30, it has helped me save so much more than that in just 4 months.

andyfromotley

Gosh no wonder you are in financial trouble, you are missing over £760 from your budget.

This SOA is a wish list not reality. You need to fill in an SOA properly to see what your actual expenses are, however i can tell you just from a quick glance that you can save TONS from what you are currently spending. Just a quick 10 second glance show easy savings of

Gas and electric - £30pm
Sky etc - £45
Food - £200
Mobiles - £50
Boiler plan £7
Haircuts £50
Gym £12
Your creation loan £169

Total saved per month £563pm, and trust me i have only started, theres loads more can be saved no doubt. Add to the missing £760 and you have £1323 to pay to your debt every month. Even without your coming windfalls and overtime you could easily pay this debt off in about 2 years, add in the extras and you could be DEBT FREE in a year to 18 months.!

Of course you could completely ignore this, convince yourself its too hard, get MORE DEBT to pay off your already HUGE debt, steal from your future self by paying interest. If you do let me know how that works out for you.

seriously you are in a good position to sort this out, and well done for doing so. But please dont go down the debt route.

YORKSHIRELASS

Hi and welcome, you will find loads of good advice around here.

So, you have income of £4180 and outgoings of £3420. That means that you have £760 left in the bank every month but you are saying its a stretch at the moment. (Sorry this might be repeating what others have said but its true!) You can only plan going forward if you know exactly how much you are spending on each category. I would suggest keeping very accurate records of your spending going forward from now, every penny to begin with. Seeing it in black and white makes it real.

Do you know where your debts came from? If not (and I didnt) then this is a real warning sign that things are out of control. The good news is that you have a good income and can do something about it. Unfortunately having a good income doesn't always mean that you will be able to afford a good lifestyle. You really do need to take this on board.

Borrowing more money is never a good idea. It sweeps the debt under the carpet and might just make you feel like the problem is sorted. Inevitably this leads to more uncontrolled spending and more debt. Many of us on here have tried it and failed.

There is only one way to tackle debt - by making big changes to your lifestyle, cutting back massively, making use of 0% balance transfers if you can and learning that every penny counts. As from today buy nothing unless it is budgeted and you have the cash.

https://www.whatsthecost.com will show you how making small overpayments can reduce the length of time it will take to pay the debts and how you can save interest.

Good luck, just think about how much free cash you will have each month once you start clearing those debts.

dirkio78

Already I'm pleased I joined this forum and took the step to lay out in plain-sight a good deal of my financial woes. I agree as pointed out to me that there is £700 unaccounted that I know gets spent on all manner of things. Some of these are essential such as school trips, clothes, car maintenance and I'm sure a bigger amount goes on non essentials such as entertainment, alchohol, ebay impulse buys and so on. So I will take some time with the recommended YNAB app to see if I can bring everything under control. Thanks japmis for suggesting it. We have been using a phone app called GoodBudget for a few months which has helped to some degree with the same issue.

I followed the advice of a few of the replies and looked to find ways to cut some of the monthly bills with these results:

Completed
**************
phone/broadband - Was £51, now £25 (-£26)By moving both to Sky from BT (I actually did this 2 weeks ago!)
Gas/Electric - Was £123, now £97 (-£26). By switching to dual fuel EDF.

Planned
**********
Sky - Current £35, future £7 (-£28). By changing to Freesat and Now TV. (Daughter not happy with the loss of Disney Jr!!!!)
Pet insurance - Current £42, future £21 (-£21). switch from John Lewis to Legal and General with reduced cover amount as it was too high
Home insurance - Current £56, future £22 (-£34).
Partner income protection - Current £45, future £20 (-£25).

So once I complete the switches above which I am still in the process of working on I should be £150 per month better off. Thanks guys for reminding me to make this my initial primary focus. Some of you mentioned more savings possible but for me some areas as already low or not possible for now:

Food - £450. Im already frugal doing Aldi for 80% of my shopping. I have a growing and hungry child
Mobiles - £80. We have two at £40 each. They are contacted until April 2016. But at that point we will put them both as pay as you go and save £50 per month.
Haircut - £60. Its £10 for me and £50 for the wife. I am assured hers is not expensive by female standards.

I take on board the comments from all not to sweep under the carpet the current debt by consolidating. I too have failed at this in the past. However I did think of a more sensible approach. If I replace my single £6500 credit card with a loan of the same amount. Then tart the £5500 credit card onto the cleared card to avoid spending £136 a month on that ones interest. Then my repayments on the new loan can be roughly same as they were for the card, but the capital will decrease. The £136, plus my new found £150 savings can be used to hit the £3300 credit card, plus any other spare cash that comes along such as increased OT. If you are still reading at this point and commmented before on the bad approach of consolidation, do you think this new approach is any better?

nicp60

Hi dirkio,
I hope none of the following comes across as harsh. I have been in your situation, like most of us here.

I would be more concerned about the missing shortfall than trying to consolidate at this point. Also, you must consider whether you'd actually get a loan, given that you have so much outstanding credit at the moment (lenders tend to want less than 50% of income as debt, so if you have 22k and want a further 6.5k, they'd be looking for at least a 57k income). I would do the following:

1. Using 3 months of previous bank statements, complete a totally honest SOA which details where your money has been going. How can you know where to cut back if you don't know where you're really spending it? (This might be really painful, but it's sooooo worth it!!)
2. Use the snowball calculator to work out which debts to tackle first. If you think you can get a loan, then put that in there as well. Have a play around with it so you get the idea of how soon you could be debt free.
3. School holidays, trips, random shopping, car maintenance - this needs to go into your new budget.

If you find the £700 a month, you could be debt free in 30ish months (totally crude calculation not looking at interest etc).

I really hope this helps you. You need to tackle the spending now, not keep rebalancing the debt to save a few quid. Find the £700!!

nicp60

http://www.whatsthecost.com/snowball.aspx