Setting debt to rights

amaranthus

My debt history is a messy record of making the same mistakes over and over again over the past 15 years. I racked up credit card debt of £10,000 and consolidated it into a loan tacked onto my mortgage. And then did it again to the tune of £8,000. And then I did it again to £5,000. I sold my house and was lucky enough that it had increased in value enough for me to pay off the mortgage, the secured loans, and my credit card debt.

I moved from the north to the south and rented a property, the cost of which was much higher than what I'd been paying on a mortgage. Then.. guess what? Yep, I did it again. £10,000 across 4 credit cards plus a loan of £1,000. I was only able to make the minimum payments so my debt was going nowhere.

And then, in April of this year, I moved back north and moved into a shared house with a friend. My rent + council tax + utilities plummeted from 54% of my net monthly salary to just 25% of my net monthly salary. Since then, I've been working hard to reduce the debt.

I started May of this year with £11,282 in 4 credit card and 1 loan debt. I put all my debts into a snowball calculator and started paying off as much as I could, and as of today, I've reduced that to £9,534. I've paid off the loan and will have paid off the first credit card by February.

My credit score stinks, but it's improving slowly; and watching my debt drop so quickly after it stagnating for so long is incredibly sweet.

1 May 2016 - £11,282
1 June 2016 - £11,204
1 July 2016 - £10,449
1 August 2016 - £9,938
1 September 2016 - £10,143 (holiday)
1 October 2016 - £9,411

amaranthus

I'm doing well with my snowballing. I've managed to reduce my debt by £2,000 since the beginning of May. At this rate, according to WhatsMyCost, I'll be completely debt free by summer 2018, which is a great thought.

My current credit card balances are:

1. £893 - down from £1,893 at the start of May. This is the one I'm currently paying off the most each month, as it has an APR of 34.9%. It'll be £693 by the end of the month as I'll be making another £200 payment on the 25th.
2. £2,739 - down from £2,955
3. £2,748 - down from £2,917
4. £2,831 - up, unfortunately, from £2,711, as I had an emergency car repair over the summer.

I also had a loan of £800 at the start of May, which is now completely paid off.

Last month I managed to overpay my snowball amount (of £500) and paid £732 towards my credit cards. This month I sold my old iPhone for £170. I treated myself with £50, and paid the other £120 towards my credit cards.

My credit score has increased by 40 points since May, and I'm well on the way to paying off the first credit card by the end of January, then I can move on to number 2.

Is it worth looking for a 0% deal, or will the effect the application has on my credit score and the cost of balance transfer make it not really worth it? Cards number 2 and 3 both have APRs of 22.9%.

EssexHebridean

Definitely worth taking a look - use the eligibility calculator on the main MSE site to see what your chances are though as this doesn't impact on your credit file.

If you CAN sort a 0% deal, or at least a low life-of-balance transfer, then once the 34% debt is gone, my suggestion would be to set aside some money as a priority into an emergency fund to stop your pattern of needing to fall back on the CC's if something like your car repair comes up. You also need to start budgeting a sum monthly for those expenses that come up routinely and are not a surprise - car expenses including tax, insurance and service/MoT as a starting point. That way you work towards being able to pay for stuff up front and saving yourself the fees that are invariably payable as a penalty for spreading things over 12 months.

amaranthus

Some good news today - I'm getting a pay rise in November that'll mean an extra £40 per month. Our union has also negotiated a 1.1% national pay rise award, which doesn't sound like a lot, but it's being backdated to August, so I'll get 3 months worth of backdate (about £60) in my next pay.

I get paid on Monday, and when I checked my bank balance this morning I noticed I had some surplus that I could toss onto my credit card, so that's another £50 paid off!

amaranthus

Applied for a 0% balance transfer card today and got accepted, so my card #2 balance (22.9% APR, £2,700) will be transferred over to that with a 2% transfer fee, and I can cut up the old one. Hurrah!

Cailbhinn

Your story sounds quite like my own. I had credit cards in order to keep up with the Jones despite having a property and all the bills associated with that. My very good friend let me move into her spare room and my outgoing costs are ridiculously low. I have a similar amount of debt to yourself and hope to get this paid off over the next 2 to 3 years.

All the best and hope to continue following your journey

enthusiasticsaver

Sounds like you have it sorted now. Just think if you can get more on to 0% you would have it all paid off in18 months - 2 years if you continue with the £500 per month. I agree with Essex in that if you can manage to stick away £30-£50 per month in an emergency fund then car repairs etc can come from that so you are not tempted to put it on the credit card. Same goes for annual expenses like insurances, mot, Christmas, holidays etc.

amaranthus

Thanks, Cailbhinn - have subscribed to your own diary

Bobarella

Well done for getting on top of things Amaranthus what do you think was your biggest issue in running up the debt each time?

amaranthus

Stupidity and materialism, Bobarella! That, and a head in the sand mentality that because it wasn't 'real' money, it wasn't real debt.

Most of it was spent on things-of-no-consequence. I also had a very bad habit - I used to go on a lot of business trips, and I'd use my credit card overseas. When I claimed back expenses at work, instead of using it to pay back the credit card, I'd go, "Ooh, more money in my current account to spend," and then go out shopping.

So, yeah. Basically, I was an idiot.

Cailbhinn

amaranthus wrote: »

So, yeah. Basically, I was an idiot.

Ditto but now we are all growed up!