A balancing act....... advice needed.

KB8

Hi all
I'm new to the site but have been on a DMP with Stepchange for just over a year.
I increased my payments around six months ago alongside a payrise as I am really keen to pay off my debt as soon as possible.
However I feel as though I may've been unrealistic and although most months are just fine (being frugal and working a second job are reasonably easy for me in my quest to pay debt off), on months where I have large payments to make (car insurance, MOT, annual fees etc), I find I have no reserve and really struggle in order to cover these costs by working ridiculous hours to cover the shortfall.
Does anyone have any tips for ensuring that this doesn't happen in future?
I have no savings or emergency fund whatsoever as seem to tell myself that every single penny spare needs to go towards paying off the debt.
Not sure whether this is the correct thing to do? If I should indeed have an emergency pot of money how much should this be?
Any advice gratefully received.

rolls99

I couldn't offer any advice re your DMP, but, if you're saving for things like MOT/road tax
and so on, the simplest method is divide those costs by 12, then put that amount of money aside for that purpose. Just a case of adding up, as closely as you can, what your spend will be and then put that aside.


An "emergency fund" isn't something you would use for, say road tax (which isn't an emergency), so you really have to save what you can when you can, on the basis "anything is better than nothing".


It might be worthwhile planning to save £XX per month, but, how realistic that is depends on what cash you have spare of course.


The thing is of course it's nigh on impossible to plan everything to the penny; road tax and a pure MOT cost are not emergencies but you could argue having to spend an extra £50 to get the car MOTd is.


It'd certainly do no harm to save, in a planned way for any "Known cost" like road tax, and simply put aside whatever you can afford - even £1, into an "emergency" pot

Bobarella

Hello
I know what it's like to feel like you just want to freeze life,killing the debts and then start over again. But unfortunately it doesn't often work that way. If you look at the advice of Martin, Dave Ramsey etc it is to stabilse your budget first. To do that you need to reduce your debt repayments to make sure you can budget for the MOT & anything else that is annual.
It's the only way to avoid this happening again.
You should also try and establish an emergency fund as a priority because that should in theory stop you being hit by massive issues that come out of nowhere.
It's all about stability in this game. Which can feel boring but I have to say I feel so much safer knowing I've saved the EF although it did take a while. There is a great EF challenge on the debt free challenges board run by the fantastic Patman..why not come and join in?
Bob

HappyMJ

KB8 wrote: »

Hi all
I'm new to the site but have been on a DMP with Stepchange for just over a year.
I increased my payments around six months ago alongside a payrise as I am really keen to pay off my debt as soon as possible.
However I feel as though I may've been unrealistic and although most months are just fine (being frugal and working a second job are reasonably easy for me in my quest to pay debt off), on months where I have large payments to make (car insurance, MOT, annual fees etc), I find I have no reserve and really struggle in order to cover these costs by working ridiculous hours to cover the shortfall.
Does anyone have any tips for ensuring that this doesn't happen in future?
I have no savings or emergency fund whatsoever as seem to tell myself that every single penny spare needs to go towards paying off the debt.
Not sure whether this is the correct thing to do? If I should indeed have an emergency pot of money how much should this be?
Any advice gratefully received.

How much should the savings account have?

There's many different opinions. Having savings whilst having debts costs money but you do need to have some savings to avoid running up more debt in the worst case scenario. How much should that be...well that depends. If you were to lose your job tomorrow how long would you able to cope with no income. For many people it could be a month until JSA and housing benefits are actually paying you (they pay in arrears). Some people might need up to 6 months or more of expenses saved if they aren't entitled to any benefits. After JSA and housing benefits are in payment you would also have a shortfall in your monthly expenditure and you'll need to fund that shortfall either from savings or by using credit.

As I'm self employed and not entitled to sick pay, holidays and my earnings are very erratic I prefer to have around £5,000 in my emergency fund which is an amount that won't affect benefit payments (benefits start getting reduced if you have capital and savings over £6,000) and should last me about 4 months and by then I should be able to claim some benefits or even better found a new source of income.

My highest interest charging debt is 6.9% so this fund is costing me £28.75 per month in interest.

sourcrates

Hi,


It seems you have committed the classic mistake of going straight into a DMP from making regular payments, and not having built up an emergency fund beforehand.


Your situation comes up time and again, in different posts, people believe they are doing the right thing by starting a DMP straight away, instead of doing some forward planning.


If it were me, I would of stopped all payments when I realised I was in trouble, its better by far, default wise, for debts to be sold on to debt collection agency's, before any kind of debt management plan, or other debt solution, is put in place.


This "forward planning" gives you plenty of time to build up an emergency fund, for situations such as you describe, the debt collection process takes a long time usually, many months, even years, you may be eager to pay off your debts, but jumping straight into things like this can lead to the problems you are experiencing now.


If you cant cope with the current level of payments, then obviously the agreement you have is not suitable for you, you would be better off, stopping your payments, advising your creditors, and stepchange of your reasons why, waiting six months, a year, saving up as much as you can, then start again, either self managed, or try SC again, or payplan.


Its the only way top do it properly.

katsu

Your SOA with step change should include budgeting for the MOT etc so where is that money going each month?

I'm wondering if your spending and SOA don't match.

peteuk

Starting up a DMP "straight away" is not always the worst thing to do (IMO) but increasing it when you think you can is always difficult.

When I had my DMP with Step Change I was always fearful of the annual review. Have I missed something, did I over/under calculate.

My advice to you is contact Stepchange, discuss having a lowered payment for a set period. Be honest and explain that you're struggling. Just three months may buy you enough space to be comfortable.

Good luck.

YORKSHIRELASS

Hi, I am not on a DMP but I am clearing debts. I have built up a £500 emergency fund which would cover me for things like a new washing machine, a major car bill etc. It would not be enough if one of us lost our job but we are just not in a position to save that kind of money at the moment.

I used to put £50 a month aside for this until I reached my £500 target.

I pay for parking at work which is £50 every three months so I put £16 a month aside. Then when the parking has to be paid the money is there. I also have a family clothing fund, a car repair fund, a small christmas/birthday fund and a heating oil fund. I can understand the feeling that you need to throw every penny at your debts but it makes sense to budget properly for these things.

KB8

Thanks to all for your wise words.
Definitely going to work extra in order to build up an emergency buffer and have already applied for a new savings accounts in order to put money away throughout the year for expected annual bills!
Think planning is the name of the game, onwards and upwards, constantly learning through this journey!! Thanks again, really appreciate the replies.

fatbelly

sourcrates wrote: »

Hi,

It seems you have committed the classic mistake of going straight into a DMP from making regular payments, and not having built up an emergency fund beforehand.

Your situation comes up time and again, in different posts, people believe they are doing the right thing by starting a DMP straight away, instead of doing some forward planning.

If it were me, I would of stopped all payments when I realised I was in trouble, its better by far, default wise, for debts to be sold on to debt collection agency's, before any kind of debt management plan, or other debt solution, is put in place.

This "forward planning" gives you plenty of time to build up an emergency fund, for situations such as you describe, the debt collection process takes a long time usually, many months, even years, you may be eager to pay off your debts, but jumping straight into things like this can lead to the problems you are experiencing now.

If you cant cope with the current level of payments, then obviously the agreement you have is not suitable for you, you would be better off, stopping your payments, advising your creditors, and stepchange of your reasons why, waiting six months, a year, saving up as much as you can, then start again, either self managed, or try SC again, or payplan.

Its the only way top do it properly.

The other advantage of an initial delay is that you get your default markers early, and should avoid the dreaded 'arrangement to pay' markers - making a clean credit file just six years away.

Just realised that's probably what you were thinking when you wrote 'default wise'