Best move to handle my debt?

AimHigh

Hi all,

Apologies for the essay but I was trying to get as much info in as possible!

So first of all I should probably explain that I'm after more 'high level' advice than needing to get down into the very nitty gritty details which is why I haven't included my SOA as I don't think it should be necessary for the following? So apologies if this is in the wrong section of the forum..

The story goes like this..

I still live at home with my parents and therefore have no mortgage/utilities bills etc hanging over my head but rather pay a small contribution towards them (board). Rewind 3 years when I knew that there was no threat of me moving out anytime soon as my partner was at university and I had no intention of renting. Unfortunately I very naively decided to buy myself a brand new car which I purchased on finance straight from the vendor. Looking back it was a horrific deal as I would still have been left with nearly a £10,000 bill at the end despite paying £340 a month for 3 years yet I signed on the dotted line happily.

Fast forward over the next 2 years as my goals shifted towards buying my first house and I started realising my mistakes pretty quickly. Earlier this year I then (potentially) made mistake number 2..

As you can imagine, finance deals aren't cheap and as this was a PCP deal, I was faced with either refinancing the balloon payment with them OR giving the car back and walking away. Now I love my car, I do a lot of travelling for work so being able to drive in comfort is great and I make so many fuel savings due to it's high fuel efficiency. I also figured by this point that if I'd already put so much money into it then I didn't want to just give it back to them and walk away with nothing to show for it so I ran the numbers and eventually ended up taking out a personal loan to buy the car off them which saved me a LOT more money on interest than if I'd refinanced it with them and meant that the car was mine. I should also state that alongside all of this, I was consistently saving money which has now led me to today.

I really want to move out as soon as possible, especially as my partner is now back for good. The trouble is that a house is definitely another couple of years away so the realistic option in the interim is to rent and this is where the problem starts..

In order to comfortably move out and pay rent, bills etc but still be able to put money away for a house, I need to get rid of the debt as I can't afford this alongside my loan. I still have just shy of £12,000 sitting over my head from my personal loan and about 36 months left to pay it (took it out June 2015) of which I can make unlimited early repayments at no penalty charge which will shorten the length of the repayments but not the monthly figure. The loan is 'cheap' I believe (3-4%) in comparison to others and the accumulated interest of my savings also means that I'm not really a huge amount worse off a year as a result of not paying off the loan with my savings.

I don't really want to take that option as it's taken me a while to save this money together and it'll set me back years for a house deposit if I was to do so.

I'm thinking that maybe the best option is to draw a line under my savings now and redirect my monthly excess money towards paying the loan off which would both bring the end date closer and save me some money on interest?

I've also considered selling the car and paying off a big chunk of the loan but the value of the car would only result in me having to cover the difference myself and then also buy a second hand car anyway so that seems counter-productive?

A second job/more hours is more or less out of the question and whilst my partner will add income when employed, it's likely to be not far beyond minimum wage so I want to try and clear this up ASAP.

Ultimately I was too short sighted to have avoided buying a brand new car in the first place and I should probably have walked away from it after 2 years but there's no use crying over spilled milk so I'd appreciate your feedback/suggestions on the best move going forwards please

Sorry for the essay, and please feel free to ask any questions etc!

Thanks,
AH

rockm87

what help is it you want? you either cut your spending or up your income. You dont feel that positive about doing both, so not sure how else you think you will sort this mess?


sorry to be negative! just a little confused.

AimHigh

Thanks for the reply, apologies for the confusion!

I'm just trying to figure out what the best option would be to ultimately get rid of the debt hopefully without sacrificing all of my savings.

As far as I see it I have the following options;

1) Use my savings to pay off the debt.
2) Draw a line under savings and put every spare penny into the loan to get rid of it ASAP.
3) Continue as I am and start renting which will result in little to no disposable income / savings.

I'm leaning towards number 2 which may result in putting off moving out a while longer but won't lose me a huge chunk of cash in one go..

I was hoping to either get advice on which is the best option or for anyone to point out an option 4 that I may have missed..

Sorry for the confusion, hope this clarifies?

Bobarella

Ok just to add another spin to it, would your parents allow your partner to move in with you all there for a time therefore allowing you time to clear the debt and save for a place of your own?

AimHigh

Definitely not but thank you for the suggestion

rockm87

ok...welll how I see it, I'm thinking the Dave Ramsey plan may work best for you.

Keep £1,000 for emergencies (sorry not sure what savings you have).

and then anything else after that use to pay off your debt smallest to largest (the snowball method) there are snowball calculators online.

Then I would work to build up a rental deposit (usually a month and a half of rent, and any additional moving costs) and then consider moving out!

best of luck!

AimHigh

Thanks!

My only worry with taking that approach is that I won't have the money for a house deposit and I don't want to get stuck renting.. EDIT: by which I mean not being able to then go on and save a deposit to get a mortgage rather than renting.

I will research that plan though thank you

somethingcorporate

Then continue to live at home to save for your deposit once your debt is cleared. Use what you would have used to pay the loan to rebuild your savings.

blondieliz

I would agree with Rockm, just get rid of the car debt asap.


Would you and your partner consider living in a shared house? I know it sounds cringey, but my friend does it and loves it, its nice and cheap and privacy isn't a problem.


Also, a more random suggestion, I have another friend who lives in an old school - each person has a classroom and a private bathroom and the rent is about £100 per month - its basically cheaper for property companies to do than hiring security to watch unused buildings. Seriously, it is one of the coolest places that I have been to and my pal is saving a fortune each month. Sounds weird, but seriously, look in to it.

rockm87

You need to sort one thing at a time, get rid of your debts and then focus on saving for either rent or a deposit.

enthusiasticsaver

Without further information it is difficult to advise. Are you wanting to rent now with your girlfriend and if so you need to work out costs like deposit and agent charges etc etc and if unfurnished then build in furniture essentials. Personally I would aim to pay off the personal loan first but keep some back as an emergegency fund even if it means delaying your plans to move in with your girlfriend who is not working so you would need to cover most of the costs on just your income. A heavy burden when you are used to not paying bills and. £12k loan. Expensive lesson learned but thankfully when you are young.