Ready for the DFW challenge - what's my options now?

motinter

Hey,

I've come out of a long slump of feeling low, out of control and feeling completely helpless.

I'm ready to take control of my debt problem.

I am self employed, my take home pay can range from 1500-2000 per month, and sometimes I have income that isn't coming in on time. But I see that improving over the next 6 months, as my focus and mental health improve. I am managing my energy to boost my income as well as ensure I am clear on payment terms with customers.

My current circumstances.

Debt 1: £9000 @ 19% (current min payment = 220pcm)
Debt 2: £5000 @ 16.6% (current min payment = 120pcm)
Debt 3: £900 @ 18.9% (current payment = 50pcm)
Debt 4: £600 @ 33.9% (current payment (160pcm)

Overdrafts: £900, £1400, £500 (each one costs roughly £30 per month in fees)

Store card: £900 @ 37% (current payment 150pc)

Total = ~£20'000. Current monthly spend on debt = £800

I have also messed up my income tax for the last year so I am paying HMRC too.

I have cut right back on all my expense and am prioritising this debt for a 2-3 years. I want it gone. I want this load off my mind.

Other living costs: rent is £400 per month and various food/phone bills costs me ~£150 per month.

I am not sure the best route to take right now. To get rid of all debts within 2 years, my outlay would be ~£1300 per month (which I feel I can do, IF I focus on work and this). I am attacking the high rate cards as a priority. The HMRC is looming though, and is probably my biggest obstacle right now.

I am willing to put as much income as I can into paying these debts off now. My current credit rating is on the low side of 'good'.

The best consolidation loan I can get is £15'000 over 2.5 years @12% APR with a 2 month debt holiday.

Step change recommend a DMP.

I am not looking for an easy way out here, I want to face this head on and am actually relishing the challenge. I am just looking for options on my best route out of here. Any advice would be greatly appreciated.

Situation 1 = income doesn't improve drastically

Situtation 2 = income boosts to 2800 take home per month within 6 months.

nkkingston

You need to sort your debts into priority and non-priority first. The distinction is based on what they can do to you if you don't pay. If you'd end up in prison or homeless, that's a priority debt. If you'd end up bankrupt, that's a non-priority debt. HMRC is priority, as are things like rent and bills.

Forget your credit rating. it's only relevant if you want more debt, and the whole goal here is to end up with less.

Consolidation loans are rarely a good idea. If you're looking for debt to pay off debt you're still stuck in the system, and there's a very good chance that all you'll end up doing is increasing your debt. Remember: debt is a symptom. If you don't treat the disease you can't cure the symptoms. If your debt is linked to your mental health, pushing yourself too hard could have the opposite effect to what you intend (like an athlete trying to get over an injury by working out).

The first step is to establish the cause of the debts. Was it emergencies you hadn't budgeted for? Managing your mental health with shopping? Or overspending to day to day living? If you're struggling to see where it's gone, do a spending diary. Bank statements are good for working backwards, a notepad in your pocket is good for tracking where your cash is going (damn you Costa popcorn lattes!).

The next step is an SOA to put what you've learned down in hard figures. Share it here, and we'll help you find ways to make your money go further. Because you're self-employed, you need to make sure you've got a good emergency fund for the months when work doesn't pan out the way you want: at least enough to cover you if, say, you broke your hand and couldn't work for six weeks.

Work out a plan that ensures a reasonable standard of living for yourself, and includes putting money aside for emergencies (and for tax, since you're self-employed). It may take longer to reach your goal, but you'll be less likely to backslide. Pay minimums and save money to pay HMRC when it hits. After that, snowball to hit the higher debts first.

Never punish yourself for backsliding. It's normal to stumble. Reward yourself for your achievements (but free rewards!). When that store card is gone, put it on the calendar with a big smiley face next to it. A gold star for every overdraft you clear. A guilt free night in bingewatching an old DVD boxset for Debt 4. A day in the park for Debt 3. And so on.

motinter

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 1800
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1800

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 350
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 30
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 100
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 100
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 580


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Barclays.......................9000......220.......18.9
Natwest........................5000......125.......16.62
Tesco..........................900.......25........18.9
Barclays overdraft.............1000......40........20.12
Natwest overdraft..............1400......30........17.81
Very...........................900.......70........36.9
Marbles........................660.......40........33.9
Total unsecured debts..........18860.....550.......-


Monthly Budget Summary
Total monthly income.................... 1,800
Expenses (including HP & secured debts). 580
Available for debt repayments........... 1,220
Monthly UNsecured debt repayments....... 550
Amount left after debt repayments....... 670

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -0
Total Unsecured debt.................... -18,860
Net Assets.............................. -18,860

Created using the SOA calculator at https://www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

motinter

That's running off a good month at work currently.

And my outgoings beyond debt repayments are at a bare minimum.

I think the figures show that it CAN be done on that sort of income. The real problem is the back tax that I have owed.

In regards to my spending habits - I have had an awakening. I was spending to self medicate - it helped me feel better temporarily, detach from reality - but now I see it clearly for what it is, and as said am ready to follow a plan, build my business and clear this debt off.

Once it's paid off I will have some nice disposable income again......but until then.

Karonher

There seem to be a lot of thinks missing. Do you never have a haircut or buy clothes?

Travel does not have anything in it nor does presents. Is this right? It will be a god idea to build up an emergency fund.

A budget that tight will be OK for a few months but can you maintain it for years?

motinter

Karonher wrote: »

There seem to be a lot of thinks missing. Do you never have a haircut or buy clothes?

Travel does not have anything in it nor does presents. Is this right? It will be a god idea to build up an emergency fund.

A budget that tight will be OK for a few months but can you maintain it for years?

I guess I'd need to add say 100-200 per month on little expenses that add up.