My <1 year debt free plan/advice

87mave · 19 February 2016 at 3:23PM

Hi all, just wanted to write a new post regarding my position.

I'll start off by saying I made some stupid decisions years ago and I have never really been a responsible adult about it, more that I ran away from the problems I got into with money.

I took out a 7.2k loan back in 2008 for a car. It was a loan originally from Norwich Union (Now with Santander) and I was paying for the first 8 months (£215 a month) then I got made redundant and was claiming for the protection on that which I took out when I was unemployed. To cut a long story short I got work again but ended up defaulting on the account in 2010. I was living at home at the time and I've been travelling abroad and working within the last few years whilst paying off a debt collection company so much a month. Hardly anything, in truth. The car was sold back in 2012 for £3k, I made a massive loss on that and on the bills for the car itself. The remaining debt on that account is currently £5277 according to Equifax. Yet I put in a PPI claim a few years ago which knocked it down to approx £4277 (If I remember it was about £1000 off), but I didn't complete the paperwork. (That whole responsibility thing I was too lazy about) I have since phoned up again today and they're sending out the paperwork again ASAP. Remaining £4277

I also had a catalog account which I defaulted on in 2013 for a sum of £306 (According to Equifax again). I have since not heard a single thing about this, no letter from debt collection, but I still think I should pay this off to clear it. Remaining £306

A credit card with Lloyds TSB, I have an account with them and I am £780 odd into my £800 limit. I have been paying off the minimal amount for god knows how long, this is completely daft of me and I didn't really look into it so much that I've basically been billed what I've been paying off, so not really making a mark on it. Is is worth doing a balance transfer or shall I just pay a chunk of it off? Remaining £780

Current account I'm sat at the moment on -£840 in a £850 overdraft. Remaining £840

That brings a grand total in debt of £6203. Now it could be a !!!! lot worse, I know. And I have no excuses for being in that amount of debt. I have no children, anything. I've rented out in the past but I realise it's a bit of a waste of money in my position. I am currently at my parents after finishing some travelling a month ago. I've always hated this debt as it's hanging over me.

Now I've been very fortunate to land myself in a job doing something I enjoy paying more money now than I've ever had, which starts next week. It's paying 21k a year. I initially thought at first I'd go renting again, but that's a waste and as much as it bugs me being back at the parents, it means I can get myself out of this hole.

wages after tax £1447 (£334 per week)
outgoings:
rent £150
car insurance approx £28
tax £23
mobile £15 =£216
Petrol £approx100

£1447-£316 =£1131 per month left over.

I'm going to say that I'll spend approx £100 a month on myself for leisure. Clothes, beer, family events etc. which leaves a remaining £1031 in my pocket per month, give or take a few pounds here or there.

Technically I can pay off all my debts in 6 months, but I am in need of a new car, currently it's a 14 year old Alfa 147 which I barely trust, and doesn't get much higher than 32mpg. I have also recently passed my CBT for a bike, now I'm thinking I could possibly get a bike and save a lot of petrol money going to work and back, which is a 30 mile round trip. I know the initial cost will be high but it would pay itself off over time.

Would it be best to try and take a chunk off my credit card first, or getting the loan paid off asap? Or split it all down? Thank you for reading.

I eventually want to start saving for my own place, current credit score is 258 which is very poor. I know I would need to get this much higher to even be looked at in the position of looking for a mortgage. I am 28 years old. I am single too.

moneycantbuyyouhappiness · 19 February 2016 at 3:46PM

Hi Mave

Well done on facing up to these debts, that's half of the battle. :T

I really know where you are coming from with the car, but in all honesty 6 months is nothing.

I know this isn't what you probably want to hear but could you try and make it last the year out. That way you could have your debts paid off and have some savings to buy a car outright or at least reduce the monthly payments.

I have had to learn the hard way that I need to put around £75 away each month to account for servicing/maintenance costs on my car. (Never buy a Fiat!!!) If I use it that's fine If I don't it will keep mounting up in the account until my debts are paid off and I can afford to buy a newer one. Its getting close to the MOT now and I am seriously having sleepless nights about the possible list of failures. But even if it costs me £200-£300 That is much cheaper than buying a newer one!

Good Luck :beer:

MCBYH x

87mave · 19 February 2016 at 8:42PM

Thanks for the reply.

Yes you're probably correct, 6 months in fact is nothing, and I'm positive the car will outlast that anyway. Just you know, it's a bloody Alfa! But I know the car now and a new one I wouldn't..

Kitten868 · 19 February 2016 at 9:45PM

Which one to pay first is down to APR. This forum is not a fan of consolidating with a loan but in your position, as I'm guessing you're interest rates are shocking, might be better if you can get a 3% rate? Worth looking. If you do this you have to close all the old accounts. Get your APRs worked out fill in your PPI and make a payment plan. Welcome back hope it's not too depressing x

87mave · 20 February 2016 at 12:41AM

Kitten868 wrote: »

Which one to pay first is down to APR. This forum is not a fan of consolidating with a loan but in your position, as I'm guessing you're interest rates are shocking, might be better if you can get a 3% rate? Worth looking. If you do this you have to close all the old accounts. Get your APRs worked out fill in your PPI and make a payment plan. Welcome back hope it's not too depressing x

No offence but did you read my post? I don't need a loan or anything as I have plenty in my pocket left over to pay off my debts from my new job. The APR on the original £7.2k loan is frozen as it's now with a debt collection company. The only APR I have is with my credit card, which I will probably pay a chunk of that on my first proper payday in April.

Kitten868 · 20 February 2016 at 4:38AM

Why ask if you're going to call me stupid? You never said interest had been frozen. My point still stands. It's down to APRs so credit cards first.

Lemonsqueezer78 · 20 February 2016 at 9:59AM

If I were in your position - fairly modest level of debt, with ability to clear it pretty fast, but wanting to make a large(ish) but non-urgent purchase - I would probably still focus on clearing the debt first and then saving the money for the car/bike purchase after that. That would be the true MSE way.

But... I think in your case, as your debt isn't massive you could split your monthly "disposable" between your debt and savings... Say over 9 months, pay off £700 of your debt, and save £300. At the end of 9 months you will have cleared your debts AND have £2700 saved to make your purchase - or carry on saving at an accelerated rate (now your debt is cleared) for a few months, to save more if you want to.

I think 9 months is reasonable for anyone to clear a debt that size.

87mave · 20 February 2016 at 11:46AM

Lemonsqueezer78 wrote: »

If I were in your position - fairly modest level of debt, with ability to clear it pretty fast, but wanting to make a large(ish) but non-urgent purchase - I would probably still focus on clearing the debt first and then saving the money for the car/bike purchase after that. That would be the true MSE way.

But... I think in your case, as your debt isn't massive you could split your monthly "disposable" between your debt and savings... Say over 9 months, pay off £700 of your debt, and save £300. At the end of 9 months you will have cleared your debts AND have £2700 saved to make your purchase - or carry on saving at an accelerated rate (now your debt is cleared) for a few months, to save more if you want to.

I think 9 months is reasonable for anyone to clear a debt that size.

Thank you for breaking it down like that. Very informative and I will most likely take that route.

asparagus1968 · 20 February 2016 at 12:21PM

Hi, well done on the new job

I think it's great you can stay with your parents a while longer, you can pay off debt, save for a car and then start afresh in less than a year.
good luck

87mave · 21 February 2016 at 11:58AM

Ok so as I put in the original post, I defaulted on a catalogue back in 2013 (which has a start date of 2009), I haven't had any single letters since or any emails etc. Do you think I should contact them to pay it off, and also will it be shown as "Cleared" on my equifax report once done? Thanks